PRICES and rents of Singapore’s industrial spaces continued to rise in the third quarter of 2023, amid overall inflationary pressures, based on JTC’s quarterly market report released on Thursday (Oct 26).

Knight Frank’s head of research, Leonard Tay, noted that both the industrial price and rental indices have risen for 12 consecutive quarters since Q4 FY2020, even though gross domestic product growth for the manufacturing sector had contracted – by 5.3 per cent in Q1; 7.7 per cent in Q2 and 5 per cent in Q3 2023 – buffeted by falling export numbers throughout the year.  

“The higher-for-longer interest rates and the uncertain economic outlook are capping price gains and manufacturers have also turned cautious amid the economic uncertainties, preferring to renew rather than relocate,” added Lee Sze Teck, Huttons Asia’s senior director of data analytics. 

Industrial rentals

The industrial rental index rose 2 per cent in Q3 compared with the second quarter. Year on year, rentals were up 9.3 per cent. 

JTC said the increase in rentals for Q3 was led by the multiple-user factory and warehouse segments, which rose 2 per cent and 2.4 per cent compared with the previous quarter. Among other segments, rental for business park spaces grew 1.2 per cent while that for single-user factories saw an increase of 1.9 per cent in Q3.

Year on year, rentals for multiple-user factory spaces and warehouses saw the highest growth, at 11.1 per cent and 9.1 per cent respectively. Single-user factory spaces were up 7.6 per cent, while business parks grew 4.2 per cent.  

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In light of slowing global growth and further weakness in the manufacturing sector, Colliers International expects softer demand for single-user, multiple-user and warehouse spaces, with moderate rental growth in the near term.  

JTC said overall prices of industrial spaces continued to rise in Q3. The price index of all industrial spaces rose 1.4 per cent compared with Q2, and 6.2 per cent year on year.  

Multiple-user and single-user factory prices climbed in the quarter, with multiple-user factory prices gaining 1.1 per cent and single-user factory prices increasing 1.7 per cent in Q3. Year on year, multiple-user factory prices jumped 7.3 per cent, while single-user factory prices rose 5 per cent.

At the end of September 2023, total industrial stock stood at 52.8 million square metres (sq m). Overall occupancy stood at 88.9 per cent, a 0.2 percentage point decrease from the previous quarter. 

Knight Frank’s Tay said that despite the shrinking electronics sector, occupancy level in factories has remained stable without noticeable signs of end-users giving up significant volume of space. 

Meanwhile, JTC noted that the transaction volume of industrial properties fell by 15 per cent compared with the previous year, based on the caveats lodged.

As new supply had outpaced new demand, most of the property types, except for warehouses, saw a fall in occupancy rate. Overall occupancy for industrial spaces fell by 0.8 percentage points year on year, as new completions had been strong for the last few quarters, added JTC.

Tay said that even though the warehouse occupancy rate has improved 0.3 percentage point to 91.3 per cent in the third quarter, there are about 4.8 million square feet (gross floor area) of soon-to-be-completed warehouse stock for the rest of 2023 and 2024. And combined with inventory being cleared from existing storage spaces, this would have eased some of the demand pressures for quality logistics facilities in Q3 FY2023. 

Over the past year, industrial space supply expanded 1.3 million sq m, while total occupied stock rose 0.8 million sq m in the same period.

In Q3, JTC allocated a total of 84,100 sq m of ready-built facilities (RBF). This included 53,200 sq m of high-rise space and 22,800 sq m of land-based factory space.

The total amount of RBF space returned in Q3 amounted to 49,000 sq m, of which 34,900 sq m was high-rise space and 6,500 sq m was workshop space. 

For the last quarter of 2023, JTC expects around 0.3 million sq m of industrial space to be completed. 

Between 2024 and 2026, JTC is anticipating an additional three million sq m of industrial space to be completed, which translates to an average annual supply of one million sq m of new space from now until the end of 2026. 

Over the last three years, average annual supply was around one million sq m and demand was 0.7 million sq m.

Weaker demand

With weaker demand relative to new supply, Colliers International foresees lower leasing interest and activity in the near term. As such, occupancy level and rental growth are expected to ease. 

The warehouse segment will continue to be the bright spot, with strong demand from last-mile logistics and cold storage, added Colliers.

Huttons’ Lee said that while there are early signs of bottoming out in manufacturing and exports, companies are unlikely to expand for the moment until there is more clarity on the economy. “Prices of industrial space may see not more than 5 per cent growth in 2023 while rents could increase faster at up to 8 per cent,” he added.