Prices, rents of Singapore industrial space continue to rise in Q3: JTC
PRICES and rents of Singapore’s industrial spaces continued to rise for the eighth straight quarter in Q3 2022, according to JTC’s quarterly market report released on Thursday (Oct 27). But some analysts believe this growth might moderate in 2023 amid concerns of recession and inflationary pressures.
Industrial space prices rose 2 per cent on the quarter and 7.2 per cent on the year. Prices were up 1.9 per cent and 2.1 per cent quarter on quarter in the multiple-user and single-user factory segments, respectively.
Year on year, prices of multiple-user and single-user factories spiked up 7.6 and 6.8 per cent, respectively.
Meanwhile, rents hiked 2.1 per cent quarter on quarter and 4.9 per cent year on year, with an increase in all segments of the market – multiple-user and single-user factories grew 2.4 per cent and 2 per cent from the previous quarter, respectively, while business parks rose marginally by 0.8 per cent and warehouses expanded by 1.9 per cent.
On a year on year basis, rents for the warehouse and multiple-user factory segments surged by 6 per cent and 5.8 per cent, respectively. Single-user factories also saw rents rise 3.5 per cent on the year, while rents for business parks inched up 0.4 per cent.
This is the fastest year-on-year growth for prices and rents since Q2 2013 and Q2 2014, respectively, said Colliers’ head of research Catherine He.
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“Specifically, there has been a rise in (the rental performance for) investor-grade ramp-up warehouses, as the delivery of new supply is not keeping pace with demand,” she said.
She added that the strong rental growth for multiple-user factories could be attributed to growing demand as occupiers look for office-grade industrial spaces near the city fringe.
Head of research at JLL Tay Huey Ying highlighted that the multiple-user factory segment outperformed every other industrial space this quarter, likely fuelled by continued growth in the manufacturing sector. Based on advance estimates released by the Ministry of Trade and Industry on Oct 14, Singapore’s manufacturing sector expanded for the ninth straight quarter in Q3, albeit slowing to 1.5 per cent quarter on quarter.
Industrial space prices are also increasing as investors turn their focus from residential properties to industrial properties, “chasing” after strata industrial space that has longer leases, said Huttons.
Overall occupancy stood at 89.7 per cent in Q3, slipping 0.3 percentage point quarter on quarter and 0.5 percentage point from the same period last year. JTC said this is mainly due to a fall in occupancy among single-user factories, which had slipped 0.5 per cent from the previous quarter.
The dip also comes on the back of mounting cost pressures and rising interest rates, which are forcing some industrialists to scale back or consolidate their space requirements, said Lam Chern Woon, head of research at Edmund Tie.
“Notably, the business park segment was the only segment that experienced an improvement in occupancies,” he said, “supported by strong occupier demand, which may be attributed to the spillover demand from the current tight office supply situation.”
The total available stock of industrial space was 51.5 million square metres (sq m) in Q3, rising from 51.3 million sq m quarter on quarter and 50.6 million sq m year on year.
Meanwhile, transaction volume inched up 0.7 per cent from the previous year, according to estimates based on caveats lodged for industrial properties.
During the quarter, JTC allocated a total of 71,600 sq m of ready-built facilities (RBF) space to industrialists. This includes 48,4000 sqm of high-rise space and 16,000 sq m of land-based factory space. JTC’s newer developments such as JTC Space @ Tuas and JTC Defu Industrial City were among the high-rise space allocated.
Total RBF returns in Q3 2022 were 65,500 sq m, of which 32,500 sq m was for land-based factory space while 23,700 sq m was for high-rise space. JTC said about 74 per cent of the total returns were due to natural expiries or companies consolidating their operations.
JTC expects around 600,000 sq m of industrial space to be completed in the following quarter. Some 40 per cent of the new supply will be from multiple-user factory spaces, around 35 per cent from single-user factory spaces, and the remaining 25 per cent from warehouse and business park spaces.
It also predicts that an additional 3.3 million sq m of industrial spaces will be completed between 2023 and 2025. This translates to an average annual supply of 1.2 million sq m from now until the end of 2025.
In contrast, the average annual supply and demand for industrial space was around 600,000 sq m over the past three years, JTC added.
This, however, will leave the overall industrial pipeline relatively tight, said Edmund Tie’s Lam – since approximately 36 per cent of the supply pipeline will be completed in 2023, followed by another 31 per cent in 2024.
“While we expect the manpower crunch in the industrial sectors to be gradually alleviated as border easing continues, rising cost pressures may lead to foreseeable completion push backs for some projects, especially those with expected completion this year or next year,” he said.
Looking ahead, some analysts believe that industrial prices and rentals will moderate amid inflationary pressures and geopolitical tensions.
“For the first time since Q3 2020, local manufacturers surveyed have turned gloomy on their business outlook for the next six months,” said Lam, pointing to the global economic slowdown, lingering impact of the pandemic as well as supply chain disruptions and rising interest rates that are expected to limit the strength of the industry’s recovery.
“On the whole, the economic headwinds are likely to moderate industrial rental growth although the seemingly large supply pressures are likely to be ameliorated by completion pushbacks,” he added.
Echoing the sentiment, Knight Frank’s head of research Leonard Tay predicted that industrial prices and rents will grow by 3 per cent to 5 per cent for the whole of 2022, supported by ongoing demand for space, before remaining stable in “moderate positive territory” in 2023.
“Despite this more cautious business environment, manufacturing clusters – such as transport engineering, general manufacturing and precision engineering – continue to be contributors to growth and output increases in Q3,” he said.
“Coupled with the nation’s standing as a safe haven for businesses, foreign manufacturers continue to be compelled to set up their regional headquarters or certain business functions in Singapore to shelter against unforeseen external shocks and the looming economic uncertainty.”
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