Prices and rents of industrial space edge up q-o-q in Q4 2020 as occupancy rate climbs
Industrial market is seen as stabilising and recovering in 2021, although some segments will fare better than others
Singapore
AFTER falling for most of 2020, prices and rents of industrial space bucked the trend in the fourth quarter of 2020 by edging up quarter-on-quarter as the occupancy rate climbed due to a delay in new completions.
And while prices and rents still retreated year-on-year, the industrial market is seen as stabilising and possibly recovering in 2021.
Prices of industrial space were up one per cent in Q4 2020 from the third quarter of 2020 as both single-user and multiple-user factories chalked up gains, going by data released by industrial land and infrastructure agency JTC Corp on Thursday.
Rents inched up 0.1 per cent in Q4 2020, with the All-Industrial rental index 14.9 per cent below the high last clocked in the second quarter of 2014.
The overall improvement in rents was in line with expansion in major industrial indicators in December, such as manufacturing output and non-oil domestic exports (NODX), highlighted Desmond Sim, head of research (South-east Asia) for CBRE.
The increase in prices and rents came as the occupancy rate climbed for the third consecutive quarter - this time by 0.3 percentage point to 89.9 per cent - fuelled by an increase in demand for storage such as warehouses as the pandemic upended construction activities.
Compared to the previous year, prices of industrial space were 2.7 per cent lower, while rents were down 1.5 per cent. Still, some analysts described this as somewhat benign, given Singapore had suffered its deepest recession to date. Meanwhile, the occupancy rate increased 0.7 percentage point from the previous year.
Looking ahead, Tricia Song, head of research (Singapore) for Colliers International, expects the overall Singapore industrial market will stabilise and recover in 2021, although some segments will fare better than others.
She projects rents for warehouses could increase by 1.3 per cent this year and at a compound annual growth rate of one per cent from 2021-2025 as the growth in e-commerce fuels demand for logistics services.
Knight Frank's head of research Leonard Tay sees logistics properties landing price and rent increases of 1-3 per cent this year as Singapore positions itself as a hub for vaccine distribution.
Meanwhile, rents for factories could remain flat this year even as the economy recovers due to a spike in supply, said Ms Song. She added: "Factory supply in 2021 is expected to be significant at 6.4 times that of 2020's level at two million sq m (GFA), which is also more than double the historical annual average supply of around 0.8 million sq m."
According to JTC, as at end-December, around 2.7 million sq m of new industrial space was expected to be completed in 2021, with 76 per cent of the upcoming supply being single-user and multiple-user factory space. About 0.5 million sq m of projects were delayed from last year as a result of the pandemic.
"Delays in completion could continue for some industrial building projects, as the construction industry faces constraints on manpower and raw material supplies due to the pandemic," JTC warned.
CBRE noted that factories which had their TOP (Temporary Occupation Permit) dates reportedly pushed back include 351 on Braddell (0.26 mil sq ft), Redwood Interior's single-user factory at Sungei Kadut Street 2 (0.16 mil sq ft) and G.T.H. Engineering & Construction's single-user factory at Tuas South Link 3 (0.07 mil sq ft).
As government fiscal support tapers off, Mr Tay reckons that single-user factories - generally developed by manufacturers for personal use - will do better than multi-user factories. He estimates that prices and rents for multiple-user factories are likely to face downward pressure of 5 per cent this year since these are typically occupied by smaller firms.
However, even as the upcoming increase in industrial supply will likely impact overall occupancy, factory rents could be aided by the electronics and biomedical sectors, suggested Mr Sim, given Singapore's vaccination and 5G programmes.
Business parks, which were the most resilient of all the segments in 2020 as rents eased 1.1 per cent, could see a recovery come 2021.
Executive director (logistics and industrial) at Cushman & Wakefield, Brenda Ong, said: "The adoption of flexible working arrangements is expected to increase, supporting a flight-to-value trend. Good quality city fringe business park spaces offer a credible alternative for eligible companies in the Central Business District seeking to reduce costs."
In particular, technology and bio-med firms, which have thrived during the pandemic, are also seen as supporting demand for business park spaces going forward.
Ms Ong went on to say: "Given the rising demand for such spaces, investors are on the lookout for redevelopment or asset-enhancement opportunities."
