Industrial space rents up 2.1%, prices climb 1.7% in Q4: JTC

RENTS and prices of Singapore industrial developments rose for the ninth straight quarter in the fourth quarter of 2022, amid growing inflationary pressures, according to JTC’s market report released on Thursday (Jan 26). 

Industrial space rents gained by 2.1 per cent quarter on quarter and 6.9 per cent year on year. This brought the full-year rent growth to 6.9 per cent, an acceleration from 2021’s 2 per cent, even as the pandemic eased through 2022, noted Tricia Song, CBRE head of research for South-east Asia. 

Knight Frank Singapore research head Leonard Tay pointed out that the increase in prices and rents were driven by growth in the manufacturing sector. Based on advance estimates released by the Ministry of Trade and Industry on Jan 3, Singapore’s manufacturing sector expanded 2.6 per cent for the whole of 2022. 

“Characterised by Singapore’s attractive proposition as a manufacturing location in an increasingly uncertain world, the rise in industrial prices and rents in 2022 was moderately higher than Knight Frank’s earlier expectations of a 3-5 per cent increase at the beginning of the year,” said Tay. 

Prices hiked 1.7 per cent on the quarter and 7.5 per cent on the year. This came in spite of interest-rate hikes and a plummet of 14 per cent in transaction volumes, according to estimates based on caveats lodged for industrial properties. 

Song attributed this to sustained increase in rent growth and limited new stock. CBRE Research had, for instance, noticed that around 600,000 square feet of warehouse space was removed from the market in Q4, a possible sign that developers are redeveloping properties to take advantage of the rising warehouse rents amid tight market supply. 

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

Meanwhile, the overall occupancy rate slipped marginally by 0.3 percentage point on a quarter-on-quarter basis, and 0.8 percentage point on a year-on-year basis to 89.4 per cent. 

JTC also highlighted that new completions picked up significantly in Q4, with new supply exceeding new demand. Total available stock consequently rose to 52 million square metres (sq m), up 486,000 sq m from the previous quarter – making for the largest quarterly increase since 2017. 

Total occupied stock, on the other hand, rose by 268,000 sq m on the quarter. 

Lee Sze Teck, Huttons senior director of research, noted that this was likely due to a stockpiling of goods by e-commerce companies to hedge against supply chain concerns, as well as for the festive season in December and January. 

“Investors continued to chase after industrial space in Q4 2022 as it is probably a segment that offers a yield in excess of interest rates,” he added. 

For industrialists looking to own production spaces, about 263 units in uncompleted strata-titled developments remained available for sale at end-December 2022. These units totalled about 58,900 sq m of space, with a bulk of them being located in the north and around 35 per cent being at least 200 sq m in size. This will provide options for industrialists to site or relocate their operations to these developments.

Transaction volume, according to estimates based on caveats lodged for industrial properties, plummeted 14 per cent from the previous year. 

During the quarter, JTC allocated a total of 87,700 sq m of ready-built facilities (RBF) space to industrialists. This included 55,800 sq m of high-rise space and 23,000 sq m of land-based factory space. JTC’s newer developments such as JTC Space @ Tuas and JTC Bedok Food City were among the high-rise spaces allocated. 

Total RBF returns in Q4 2022 were 76,000 sq m, of which 47,800 sq m were for land-based factory space while 19,900 sq m were for high-rise space. JTC said about 33 per cent of the total returns were due to natural expiries or companies consolidating their operations. 

In the coming year, JTC expects around 1.8 million sq m of industrial space to be completed. Some 49 per cent of new supply will be from single-user factory spaces, typically developed by industrialists for their own use, noted the agency. Warehouse spaces will account for 28 per cent of the supply, while the remaining 23 per cent will be from multiple-user factory and business park spaces. 

This would be the largest amount of space completed since 2017, highlighted Lee, and might “add downward pressure” on prices and rents in 2023. 

As such, Lee estimates that price and rents of industrial spaces might see a growth of not more than 3 per cent in the coming year. 

Echoing the sentiment, JLL head of research and consultancy Tay Huey Ying pointed out that the dimmer macroeconomic outlook, including a projected contraction in manufacturing output growth, surging interest rates, as well as global geopolitical tensions, are likely to weigh on business confidence. 

This would temper rent growth in 2023, which could, in turn, slow price growth, she said. 

Still, Edmund Tie head of research and consulting Lam Chern Woon remains bullish on the warehouse and high-tech segments. He highlighted that their growth will continue to be fuelled by an emphasis on supply chain resilience, off the back of protracted supply chain disruptions and heightened stockpiling requirements.

“Recent continued investment commitment by global heavyweights… attest to Singapore’s status as an attractive regional hub for high-value manufacturing and research and development innovation, amid economic uncertainties and competition,” said Lam. 

Additionally, JTC predicts that an additional 2.2 million sq m of industrial space will be completed between 2024 and 2026. This translates to an average annual supply of around one million sq m from now till the end of 2026. 

In comparison, the agency said that over the past three years, the average annual supply and demand for industrial space were about 800,000 sq m and 700,000 sq m, respectively.