SINGAPORE, 28 April 2022 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on JTC 1Q 2022 real estate statistics.
While overall industrial leasing demand seemingly strengthened in 1Q 2022 – the sector saw a four-fold increase to 71K sqm from 18K sqm – it was nonetheless outpaced by the sharp pace of stock completion in the quarter. The largest project completed in 1Q 2022 was JTC Defu Industrial City, which brought forth 259K sqm of space. The overall islandwide occupancy declined by 0.4% pts to 89.8% after remaining at 90% or more throughout 2021.
Industrialists were understandably still cautious on their space needs as the start of the year was dominated by developments of a new infectious Omicron variant, supply chain disruptions aggravated by the Russia-Ukraine war and the lockdown in parts of China. Leasing demand in the first quarter of the year was driven by the multi-user factory segment which took up 67K sqm of space. The business park segment also saw a recovery in demand to 25K sqm in 1Q 2022 from a 12K sqm contraction in the earlier quarter.
Overall industrial rents continued to increase for the sixth consecutive quarter, with warehouse spaces posting the sharpest rise at 1.5% qoq. The reduction in occupied warehouse space during the quarter likely reflected increasing pervasion of obsolescence given the shift towards Just-in-time logistics as consumers adopt mobile and online shopping modes.
The ongoing external shocks have accentuated the importance of supply chain resilience. The increased stockpiling requirements amid heightened geopolitical tensions and supply chain disruptions will drive the push towards supply chain diversification to mitigate cost pressures and operating risks as well as to strengthen manufacturing capacity. We expect corporations to consider diversification in other ASEAN locations such as Vietnam, Malaysia and Indonesia.
The industrial story for 2022 remains one of record supply on the one hand, in part due to the completion of pushback projects from 2020-21, while on the other hand a softer overall environment will limit the strength of demand recovery. We are bracing for the bellwether PMI index to dip below a reading of 50 in the coming months, in line with the unabated challenges globally. The strong pipeline of over 1mn sqm of gross industrial space for the remaining of 2022 could weigh significantly on the single-user factory segment, although we expect that improving demand in the multi-user factory segment and the warehouse segment will be able to work through the relatively more moderate increase in supply. Rental increases are expected to be moderate, with hi-tech factory and modern warehouse spaces possibly seeing rental increases of up to 5% for the year. With a limited supply pipeline, rents of quality business parks located in the city fringe are also expected to rise this year given the WFH relaxations and the office market recovery.
With the announcement during Budget 2022 that the carbon tax will be progressively raised to achieve Singapore’s new net-zero emission ambition, we expect more landlords and industrialists to be encouraged to pivot their business models toward decarbonisation and cost savings. In addition, more redevelopments of ageing assets into future-proof properties with higher specifications and sustainability features may be anticipated.
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