Citimac Industrial Complex

According to JTC’s quarterly market report, prices and rentals of Singapore’s industrial premises rose for the eighth consecutive quarter in Q3 2022. This rise, however, may slow in 2023, according to some experts, who point to recession and inflation as possible causes.

The quarterly cost of an industrial space increased by 2%, while the annual rate of increase was 7.2 percent. The multiple-user factory sector had a price increase of 1.9% from the previous quarter, while the single-user factory segment saw a price increase of 2.1%.

The cost of both shared and private manufacturing facilities increased by 7.6 and 6.8 percent, respectively, over the previous year.

Meanwhile, rents increased 2.1% sequentially and 4.9% annually, with growth across the board. Multi-tenant and single-tenant factories each saw increases of 2.4% and 2% from the previous quarter, while business parks had a more modest gain of 0.8% and warehouses saw growth of 1.9%.

Warehouse rentals increased by 6% and multi-user industrial rents increased by 5.8% over the previous year. Rents for single-tenant manufacturing facilities increased by 3.5 percent annually, while those for business parks increased by 0.4 percent.

According to Catherine He at Colliers, this is the fastest annual gain in prices and rentals since the second quarter of 2013 and the second quarter of 2014, respectively.

“Investor-grade ramp-up warehouses in particular are seeing improved rental performance since new supply has not been delivered to meet demand,” she said.

Strong rental increase for multi-tenant factories, she said, might be linked to rising demand from tenants in search of office-quality industrial space in close proximity to the city’s edge.

According to JLL’s head of research, Tay Huey Ying, the continuous expansion of the manufacturing sector is likely behind the strong performance of the multiple-user factory category this quarter. For the ninth consecutive quarter, manufacturing in Singapore grew in Q3, according to preliminary estimates issued by the Ministry of Trade and Industry on October 14. This growth slowed to 1.5% quarterly, however, from the previous quarter.

Huttons reports that investors are shifting their attention from residential to industrial real estate, “chasing” after stratified industrial property with longer leases, driving up prices in the process.

Total occupancy fell to 89.7% in the third quarter, down 0.3 percentage points from the previous quarter and 0.5 percentage points from the same quarter one year before. According to JTC, this is because there has been a decrease of 0.5% from the previous quarter in the occupancy rate of single-user factories.

Lam Chern Woon, director of research at Edmund Tie, noted that several manufacturers have reduced or consolidated their space needs in response to increasing interest rates and growing costs.

Occupancy rates only rose in the business park sector, he said, “supported by robust occupier demand,” which “may be attributable to the spillover demand from the present limited office supply scenario.”

During the third quarter of 2018, there was a total of 51.5 million square meters (sq m) of available industrial space, up from 51.3 million sq m in the previous quarter and 50.6 m sq m in the previous year.

Meanwhile, estimates based on caveats filed for industrial properties suggest transaction volume inched up 0.7% over the previous year.

Industrialists were given access to a total of 71,600 square meters of RBF space by JTC during the quarter. Included in this total are 48,4000 square meters of office space in buildings and 16,000 square meters of industry space on land. It included high-rise space in some of JTC’s newest projects.

There were a total of 65,500 square meters returned to RBF in the third quarter of 2022; 32,500 square meters was for land-based manufacturing space and 23,700 square meters was for high-rise space. According to JTC, 74% of all returns were the result of contracts expiring naturally or enterprises merging.

In the next quarter, JTC plans to finish about 600,000 square meters of industrial space. Multi-tenant manufacturing facilities will account for around 40% of the new supply, single-tenant facilities for about 35%, and warehousing and business park facilities for the remaining 25%.

Between 2023 and 2025, an extra 3.3 million square meters of industrial space is expected to be built, according to the report. From now until the end of 2025, this equates to a yearly supply of around 1.2 million square meters.

When compared, JTC said that during the previous three years, the average yearly supply and demand for industrial space was close to 600,000 sq m.

Since around 36% of the supply will be completed in 2023, and another 31% in 2024, this will leave the entire industrial rather tight, said Lam.

Although we anticipate the labor shortage to be progressively addressed in the industrial sectors with border relaxation proceeds, growing cost pressures may lead to foreseen completion holdbacks for certain projects, particularly those with scheduled completion this year or next year.

Despite inflationary pressures and geopolitical concerns, some economists predict that industrial prices and rents will reduce in the future.

According to Lam, the global economic slowdown, the lingering impact of the pandemic, supply chain disruptions, and rising interest rates are all expected to limit the strength of the industry’s recovery, and this is the first time that local manufacturers had turned gloomy on their overall business outlook for the next six months.

Overall, “economic headwinds are anticipated to restrict industrial rental growth,” he said, “but the apparently huge supply constraints could be ameliorated by project delay in completion.”

In a similar vein, Leonard Tay at Knight Frank forecasted that from persistent demand, industrial prices and rents would rise by 3% to 5% throughout the whole of 2022, before leveling off in “moderately positive territory” in 2023.

In spite of the sluggish economy, he noted, “manufacturing clusters” including transport engineering, general manufacturing, and precision engineering all contributed to Q3 growth and production improvements.

As the article states, “international manufacturers continue to be forced to establish their regional headquarters or specific business operations in Singapore to shield against unanticipated external shocks and the approaching economic uncertainties.”