Cost pressures unsettling Singapore factory users; warehouse and business park vacancies rise in Q3
To bolster occupancy rate amid softer demand, landlords are likely to offer more incentives: Savills
SINGAPORE’S steadily rising industrial rents are pushing occupiers to look for less pricey premises, resulting in falling occupancies at warehouse and logistics properties and business parks, a report by Savills Singapore on Friday (Nov 22) showed.
Vacancy in warehousing crept up to 8.9 per cent in the third quarter, from 8.7 per cent in Q2. “Sluggish demand in-store and online had seen third-party logistics providers reducing their footprint in the face of cost pressures,” the real estate consultancy said.
Softer demand put pressure on rents in Savills’ basket of warehouse and logistics properties, which recorded “muted” growth of 0.2 per cent quarter on quarter.
“As business conditions continue to be buffeted by both global economic challenges and cost pressures, tenants’ tenacity to keep up the fight is motivating them to move to cheaper accommodation,” said Alan Cheong, executive director of research and consultancy at Savills.
“The percolative effect is keeping rents for multiple-user factory space and prices for shorter-term industrial property leases up,” he added.
During the third quarter, vacancy at multiple-user factories improved by 0.3 per cent quarter on quarter to 8.4 per cent, the lowest since 1996. The drop could be attributed to landlords revising their rental expectations or offering incentives to fill up spaces in less prime locations, said Savills.
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Its basket of prime multiple-user factory rents rose 1.3 per cent in Q3 to S$2.29 per square foot (psf).
Meanwhile, the single-user factory vacancy rate rose 0.3 per cent to 12.3 per cent in Q3, as tenants who had pre-committed to spaces before they were completed could be taking some time to move in, thus driving up vacancy. Rents for single-use factories tracked by Savills rose 0.6 per cent from S$1.79 psf in Q2 to S$1.80 psf in Q3.
At business parks, clear pockets of weakness dragged on demand and rents. Based on a separate report from Edmund Tie, overall business park occupancy rates rose by 0.5 percentage point to 78.8 per cent in Q3, with a “clear bifurcation between central and suburban business parks”.
Still weak
While occupancy at central region business parks improved to 90.3 per cent in Q3 from 88.8 per cent in the previous quarter, suburban business parks were hit by an influx of new supply due to partial completions at Punggol Digital District (PDD), said Edmund Tie. Occupancy at suburban parks dropped to 64.3 per cent in Q3 from 64.9 per cent in Q2.
Savills said that overall leasing demand for business parks remains weak, including in some prime clusters such as Mapletree Business City and Science Park.
“Most of the leasing interest comes from tenants who are looking to downsize, upgrade from older developments or relocate from offices,” the consultancy added.
Its data showed monthly rents for standard business parks slipped 0.2 per cent to S$4.06 psf, while rents at prime business parks had a larger fall of 6.2 per cent on quarter to S$5.92 psf in Q3.
JTC’s quarterly figures showed that its overall industrial rental index rose a marginal 0.3 per cent in Q3, compared with the previous quarter. Multiple-user factory and warehouse rental growth moderated to 0.6 per cent and 0.1 per cent, respectively, while single-user factories had a 0.3 per cent decline in the quarter.
Business park rents were also down by 0.2 per cent. In view of the subdued demand for business park spaces, some landlords have “become more flexible in their rental expectations in order to attract prospective tenants”, said Savills.
A surge in pipeline supply in 2025 will bump up completions by almost 40 per cent over the four-year historical average, said Cheong.
Similarly, Edmund Tie noted that rents in the business parks and hi-tech parks segment will face further pressure from elevated vacancy rates in suburban areas, particularly as the PDD approaches completion in 2025.
“To bolster occupancy rate amid softer demand, landlords are likely to be more generous with incentives such as longer rent-free periods and fit-out allowances to attract prospects. Nonetheless, rents across all segments will be bound to remain under pressure in the near term,” said Cheong.
Savills expects rents for multiple-user factories, as well as warehouse and logistics spaces, to rise at a moderate pace of up to 3 per cent each this year, less than the 10 per cent year-on-year rise for multiple-user factories, and 5 per cent for warehouse and logistics spaces in 2023.
As electronics and semiconductor manufacturing output improves, rents for multi-user factories are expected to rise, said Edmund Tie.
“Cost pressures – including supply chain costs, construction material costs, energy prices and sustainability requirements – are playing a key role in shaping the future of industrial real estate,” said Sally Tan, senior managing director and head of client solutions at Savills.
“While these factors are pushing up costs, demand remains strong in key sectors like logistics, advanced manufacturing, healthcare and data centres, which should help stabilise rental rates and capital values in the long term,” she added.
Overall industrial leasing activity has strengthened from two quarters of slowdown, Savills noted. Total leasing volume has risen by 2.1 per cent on the year to a two-year high at 3,205 tenancies in Q3.
“It was attributed to higher leasing demand for warehouse spaces, which (have) 10.1 per cent more tenancies signed,” the consultancy said.
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