Singapore industrial market: A pandemic winner

THE United States is launching a US$1.9 trillion stimulus package that could catalyse global economic recovery and global trade volumes. This large economic rescue package will be a booster to Singapore, given her open economy and high dependence on global trade.

In particular, it will benefit Singapore's major manufacturing industries such as electronics, petrochemicals, oil and energy services, which are well-positioned to ride on global demand recovery and support the country's industrial real estate market.

Indeed, Cushman & Wakefield's Signal Market: Global Guide to CRE Investing 2021 shows that global industrial and logistics assets have emerged as one of the pandemic winners and will lead the upturn as the world's real estate markets recover over the next few years.

SINGAPORE INDUSTRIAL MARKET BOTTOMS OUT

The Singapore industrial market has shown signs of bottoming out as seen by price and rent growth in Q4 2020. According to JTC statistics, overall industrial prices and rents rose by 1 per cent and 0.1 per cent quarter on quarter respectively in Q4 2020 after three to four consecutive quarters of decline.

Growth was underpinned by higher overall occupancy rates across the board. Due to construction delays in 2020, 2021 will be a bumper year for new industrial supply.

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Nonetheless, this would not derail market recovery, given that most of the new supply are pre-committed single-user factory space.

Furthermore, prevailing market megatrends should sustain demand for industrial space in Singapore.

E-COMMERCE ADOPTION HAS ACCELERATED AND WILL BE STICKY

The pandemic has accelerated the adoption of e-commerce that will continue to stay. Average e-commerce adoption (as measured by proportion of online sales to total retail sales) has risen to 12.8 per cent in 2020, compared to 5.8 per cent in 2019.

While once thought of as Internet-resistant, the food-and-beverage (F&B) and groceries market has made strong inroads into e-commerce. Growth in the online F&B and groceries market was supported by powerful network effects caused by more consumers switching to online channels to order food and groceries, and more merchants going digital to mitigate lower retail footfalls amid remote working arrangements and safe distancing measures.

While online shopping may moderate with the roll-out of vaccines, it is likely that the long-term behaviour of many consumers has been permanently altered.

As the e-commerce arena heats up, players will need to increase their differentiation to meet growing consumer expectations. Their playing field will evolve to q-commerce, or quick-commerce, where delivery speed is key.

CHANGING WAYS OF WORK TO DRIVE DEMAND FOR CITY-FRINGE LOCATIONS

The way we work will change, spurred by ongoing business digital transformation. The Covid-19 pandemic has led to a rethink of corporate real estate strategies as businesses recognise the benefits of having their workforce working remotely.

As such, a central business district (CBD) address may not be as important to many corporate tenants. Many CBD tenants may decide to reduce real estate costs or opt for larger locations (at the same cost) by relocating to city-fringe locations or even accessible high-spec industrial buildings, if they are eligible.

COOL TO BE GREEN

One silver lining of the pandemic is its potentially long-lasting positive impact on environmental, social and corporate governance (ESG) investing. The pandemic has led to an increased focus on ESG and more companies are incorporating ESG practices into their business processes.

As buildings account for over a third of global carbon emissions, more tenants and investors are looking at buildings with green features and sustainable technologies, to improve their ESG metrics.

This aligns with the recently refreshed Singapore Green Building Masterplan, which aims to have at least 80 per cent of buildings (by gross floor area) be green by 2030. To optimise the efficiency of green building features, building owners will have to integrate smart facility management technologies.

DATA EXPLOSION

The growth of data will be exponential, given the higher adoption of e-commerce, business digital transformation and penetration of smart buildings.

Use of 5G technologies, artificial intelligence (AI) and Internet of things (IoT) technologies will further accelerate this growth.

WHERE ARE THE HOT SPOTS?

With the above-mentioned trends, where are the hot spots in Singapore? Amid e-commerce growth, prime logistics properties and food factories will see sustained demand and occupiers' real estate strategy will be driven by proximity to consumers.

As q-commerce gains momentum, speed to customer is of critical importance; industrial clusters which are located closer to the city centre, such as Jalan Buroh/West Coast and

MacPherson/Tai Seng/Ubi/Kaki Bukit, are poised for growth.

With average prime logistics occupancy rates of over 90 per cent, the Jalan Buroh/West Coast logistics cluster is well sought-after by industrialists and logistics players. The area is close to the Ayer Rajah Expressway, Tuas Second Link, Pasir Panjang Terminal, Jurong Port and the future Tuas Mega Port. One major upcoming warehouse in this area is the LOGOS eCommerce Hub at 4 Pandan Crescent.

As the focus on ESG gains traction, there will be a wave of redevelopment to revamp ageing industrial buildings to make them institutional-grade and sustainable. Buildings with longer leasehold tenures will be in higher demand as the cost of revamping needs to be amortised and to reap long-term benefits. The MacPherson/Tai Seng/

Ubi/Kaki Bukit industrial cluster will be a beneficiary to this trend, given its city-fringe location and strong accessibility via the Circle and Downtown Mass Rapid Transit (MRT) Lines.

Given the sudden boom in the online groceries market, there is a huge undersupply for cold-chain, last-mile logistics. Undersupply is expected to persist in 2021 as barriers of entry for cold-chain logistics is high due to deep operational know-how and high capital expenditure.

There are also challenges from retrofitting any conventional warehouse into cold-chain warehouses due to power grid constraints. Cold-chain logistics are energy intensive and such warehouses require a continuous supply of power and back-up energy systems for refrigeration.

City-fringe business parks such as Mapletree Business City and one-north, which have enjoyed strong occupancy rates despite the pandemic, are poised to see sustained growth with the decentralisation of commercial activities away from the city centre.

Technology, media, finance and life-science companies, who are key tenants, have largely got through the pandemic unscathed and some have even expanded.

Indeed, the market is already bustling with activity as observed from Blackstone Group's planned acquisition of The Sandcrawler building in one-north.

Finally, as business digital transformation and migration to the cloud accelerates, demand for data centres (DCs) can only go up. Furthermore, near-term future DC supply in Singapore will be tight due to a moratorium on new data centres since 2019.

Amid heightened demand and limited supply, DC rates are likely to rise and could increase by at least 10 per cent to 15 per cent in 2021.

Singapore is already a hot favourite among DC investors and ranks fifth globally among other matured DC markets, said Cushman & Wakefield's 2021 Data Center Global Market Comparison report.

A POST-PANDEMIC WINNER

Given prevailing tailwinds, interest in the Singapore industrial market will continue to be strong in 2021. Not only is it a pandemic winner, the sector is set to be a post-pandemic winner as well in the foreseeable future.

• Brenda Ong is executive director (logistics & industrial), Singapore, while Wong Xian Yang is head of research (Singapore) at Cushman & Wakefield.