External factors cast long shadow over industrial property rentals

Singapore

THE Singapore industrial property market continued to be stable in Q2, based on the latest data from industrial land and infrastructure agency JTC Corp, but analysts are cautious about the outlook, citing external headwinds.

The negative sentiment overshadowed the first quarter-on-quarter uptick in four years in JTC's rental index for overall industrial property in Singapore: The index inched up a marginal 0.1 per cent in the second quarter of 2019 over the previous quarter.

The last time that JTC Corp's rental index for overall industrial space in Singapore rose was in Q1 2015, when it went up 0.4 per cent quarter on quarter.

JLL head of research and consultancy for Singapore Tay Huey Ying said: "The ongoing US-China trade tensions and dimmer economic outlook for 2019 are likely to put industrialists and businesses into a cautious mode.

"This will provide little impetus for rent growth in the immediate term, especially for the warehouse segment, which is more exposed to the weakening in trade performance."

Colliers International's Singapore research head Tricia Song, concurring, said: "With deteriorating manufacturing and trade statistics, we are turning more negative on the industrial property market in Singapore, in particular, the factory space segment."

The property consulting group's senior director of industrial services, Dominic Peters, expects JTC's overall industrial property rental index, which slipped 0.3 per cent last year, to shed another 2 per cent for the whole of this year, followed by a further 2 to 3 per cent drop next year.

"With headwinds in the manufacturing sector and given that the majority or 78 per cent of industrial space in the pipeline is factory space, we expect rents in this segment to come under fresh pressure in the next few quarters."

He added: "Anecdotally, industrialists have already become more cautious about their space requirements, renewals and expansion plans."

Meanwhile, the occupancy rate of the overall industrial property market for the second quarter was flat over the previous quarter; year on year, however, it rose by 0.6 percentage point to 89.3 per cent.

JTC's price index for overall industrial space for Q2 2019 was down 0.1 per cent from the previous quarter as well as from a year ago.

Based on the number of caveats lodged for industrial properties, the transaction volume in the second quarter of 2019 increased by 24 per cent from the previous quarter, and by 28 per cent from a year ago.

ERA Realty's head of research and consultancy Nicholas Mak said the quarter-on-quarter fall in the price index was came mainly from multiple-user factory space, for which prices fell in most regions except for the north.

The north also fared the best among rentals of multiple-user factory space, recording a 0.5 per cent quarter-on-quarter increase.

He attributes the region's outperformance in terms of both rentals and price partly to a relatively new stock of such space being completed in the area in the past five years.

Cushman & Wakefield's Christine Li said that along with the rental rise in the north, multiple-user factories in the north-east posted a 0.4 per cent quarter-on-quarter rental gain.

She said this could be due to the increased demand for food factories in these two regions, with more F&B players tapping the lower rents asked for by centralised industrial food facilities.

Looking ahead, JLL's Ms Tay expects industrial developments with higher building specifications to cater to the needs of new-economy firms (such as technology companies) and firms from higher value-added industries. These will stay sought after.

Barring unforeseen external shocks, the business-park segment is expected to outperform the rest of the market this year, given the tight supply of quality space for lease in the rest of this year.

Ms Tay said: "Although the pipeline supply of business-park space could surge next year, a significant proportion of it is already pre-committed to occupiers such as Razer and Grab in two build-to-suit facilities in one-north."

Mr Peters of Colliers predicts a dual-carriage market, with the rental gap widening between business park and general factory space towards the end of this year.

JTC said that in 2020, around 1.7 million sq m of industrial space, including 470,000 sq m of single-user factory space, is estimated to be completed.

In comparison, the average annual supply and demand in the past three years were about 1.3 million sq m and 1.2 million sq m respectively.

The agency also said that for industrialists looking to own production spaces, there were about 170 units totalling some 112,000 sq m in uncompleted projects available for sale as at the end of last month.

This is in addition to the available units in completed strata-titled developments.