Industrial rents continue climbing in Q2, but more slowly: JTC
Industrial rents up 1% quarter on quarter in Q2; multiple-user factories clock the biggest rise, at 1.5%
PRICES and rents of Singapore industrial space rose in the second quarter of 2024, but while rents continued to rise, rental growth slowed, JTC’s quarterly market report released on Thursday (Jul 25) indicated.
Industrial rents climbed by 1 per cent quarter on quarter (qoq) in Q2, down from the 1.7 per cent rise in Q1; on the year, Q2 rental growth was 6.6 per cent.
JLL’s head of research and consultancy, Chua Yang Liang, was unsurprised by the slowdown in the rental index. He said: “On a quarterly basis, the index has been shifting to a low gear since Q2 2023. This latest quarter’s growth of 1 per cent, the slowest in 10 quarters, was dragged by weakness in the business parks and warehouse segments, despite the upside of 1.5 per cent rental growth qoq for multiple-user factory space.”
Among the other types of industrial space, single-user factory space and warehouses posted growth of 1.3 per cent and 0.5 per cent, respectively.
The rental index for business park space declined 0.1 per cent qoq, and the vacancy rate in Q2 was 21.7 per cent.
Year on year (yoy), multiple-user factory spaces, warehouses, single-user factory spaces and business parks recorded a rental uptick of 7.3 per cent, 6.6 per cent, 6.2 per cent and 3.5 per cent, respectively.
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The overall industrial price index grew 1.2 per cent qoq in Q2, reversing the 0.2 per cent decline in the previous quarter.
Multiple-user and single-user factory prices continued their upward trends, gaining 1.7 per cent and 0.3 per cent, respectively, in Q2.
Nicholas Mak, Mogul.sg’s chief research officer, attributed the growth in the price and rental values of industrial space to the sharp rise in demand. He said that 2.78 million square feet (sq ft) of industrial space was taken up, but that only 1.7 million sq ft of manufacturing space was added to the existing stock during the quarter.
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Colliers Singapore’s head of research Catherine He noted that demand in the single-user factory space was driven, in particular, by advanced manufacturing players. Among multiple-user factories, especially those with higher specifications, demand came from businesses in the biomedical and semiconductor sectors, she added.
She expects rental and price growth for both types of spaces to slow down, with demand softening and supply rising.
Demand has remained generally muted in the business park segment.
She said: “Apart from right-sizing and the impact of flexible working, movements are driven by flight-to-quality, as tenants prefer better-located, newer offices. Some projects are also offering incentives such as fit-out capex and/or longer rent-free periods to attract tenants.”
She expects demand for business parks to pick up later this year, in tandem with the anticipated economic recovery and newly completed projects, which drive leasing activity.
Overall occupancy rate for industrial space stood at 89 per cent, up 0.3 percentage point from the previous quarter. All property segments recorded an increase in occupancy, ranging from 0.2 to 0.8 percentage points compared to Q1, JTC said.
In particular, Knight Frank Singapore’s head of research Leonard Tay noted that warehouse occupancy rate improved 0.2 percentage point qoq to 91.3 per cent in Q2, with interest for cold-storage space on the uptrend.
He noted that in Q2, there was an increase in industrial sales activity. There were 509 transactions – a quarterly rise of 34.7 per cent – which were valued at S$949.6 million in total, a 25.1 per cent quarterly rise. These figures are based on data available as at Jul 16.
Tay expects demand for industrial properties to continue to be supported by manufacturers expanding their operations in Singapore. This trend will further increase sales activity when interest rates are cut.
For the second half of 2024, JTC expects around 800,000 square metres (sq m) of industrial space to be completed.
In 2025, there will be an additional 1.7 million sq m of industrial space added to the total stock. This includes 502,000 sq m of single-user factory space, typically developed by industrialists for their own use.
Warehouse supply will constitute 651,000 sq m, and multiple-user factories will see 310,000 sq m of new supply coming on stream. The combined supply of such spaces totalling, 960,000 sq m, is higher than the average annual take-up rates for these spaces of 572,000 sq m in the past three years, added JTC. The remaining 231,000 sq m of supply in 2025 will be for business park use.
Colliers’ He noted that an average annual supply of 1.1 million sq m of industrial space would come on stream between 2024 and 2026. This would exceed the average annual supply of 0.9 million sq m and demand for 0.6 million sq m in the past three years.
JLL said there could be an upside in manufacturing and trade activity in H2 that would lend some support to the demand for industrial space, despite the expected large supply completion.
Colliers’ He said: “However, rental growth is expected to moderate in light of occupier cost sensitivity and pressure from incoming supply. There have also been more renewals and consolidations than relocations or expansions, signalling the financial constraints occupiers are facing.”
With the economy pointing towards a more positive outlook in H2, market watchers are expecting industrial prices and rents to achieve between 3 and 5 per cent growth for the whole of 2024.
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