SINGAPORE, 27 July 2023 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on JTC’s announcement on Q1 industrial property performance.
Defying the manufacturing sector which saw an output contraction of 1.3% in 2Q 2023 over the previous quarter, industrial rents continued to rise by 2.1% q-o-q in 2Q 2023, albeit a slower growth from 1Q 2023’s 2.8% q-o-q growth. Nonetheless, this marks the 11th consecutive quarter of rental growth, with varying performance across the industrial property sectors.
Multi-user factory space performance
All sectors (multi-user factory, single-user factory, business park, warehouse) posted rental increases in 2Q 2023, with the multi-user factory space posting the strongest rental growth of 3.0% q-o-q. This sector also saw a 1 percentage point spike in its occupancy rate from 88.9% in 1Q 2023 to 89.9% in 2Q 2023, as net demand of 132,000 sqm outstripped net supply of 12,000 sqm in the quarter. The multi-user factory segment has recorded positive net absorption for the 15th consecutive quarter.
Demand for factory spaces were likely driven by advanced manufacturing and the biomedical sector, even as electronics manufacturing takes a backseat. Such latent demand would have propelled rental increases amid limited supply of quality stock for high-end manufacturing. The onset of Industry 4.0, coupled with advances in artificial intelligence technology, have reinforced the push towards high-end manufacturing – akin to an unstoppable locomotive. In this regard, Singapore remains favoured for manufacturing investments, given its skilled workforce, strong legal framework and reputation as a global innovation hub. More recently, Singapore-based semiconductor start-up, Silicon Box, announced plans to build a new S$2.65 billion factory in Singapore and to hire 1,200 people, while pharmaceutical firm Biosyngen will establish a new manufacturing facility that will hire 200 people.
Warehouse rents rose by 1.4% q-o-q in 2Q 2023, slowing from the 2.9% growth in 1Q 2023. Notwithstanding a net increase in the warehouse stock of 77,000 sqm in the quarter, the sector turned in a positive performance of 151,000 sqm in net demand, over twice of the net supply increase. Leasing activity in the warehouse sector remained buoyant, on the back of continued growth in the e-commerce sector and growing demand for storage space to house inventories and raw materials, amid supply chain uncertainty. However, more than 315,000 sqm GFA of warehouse space could come onstream in 2024, which could moderate rental growth for this segment towards for the rest of the year.
Business park performance
The business park sector also recorded an increase in rents of 1.3% q-o-q in 2Q 2023, compared to the 0.6% increase recorded in 1Q 2023, as the notable Surbana Jurong Campus at Cleantech Loop saw its final phase of construction being completed in the quarter. With phase 1 of Punggol Digital District (166,000 sqm GFA) coming onstream in 2024, business park rents are expected to face headwinds in the coming months, coupled with softer leasing momentum in the office sector.
The quarter saw a number of notable projects being completed. Newly completed factory spaces include Pfizer Asia’s new factory at 31 Tuas South Avenue 6 and Amazon’s data centre at 10 Sunview Drive. For the business space segment, Surbana Jurong Campus at Clean Tech Loop saw its final phase of construction being completed. The warehouse space segment saw the completion of FairPrice Group’s Fresh Food Distribution Centre at 7 Sunview Road.
Supply pressures are starting to ease for the industrial segment. As at 2Q 2023, about 3.6 million sqm GFA of industrial space is expected over the next few years. We expect a net supply of about 3.36 million sqm for the next four years (2023 to 2026, including space completed in 1H 2023) or an average of 840,000 sqm per annum, which is higher than the net supply the 950,000 sqm per annum over 2017 to 2022.
Supply pressure is most prevalent in the single-user space, particularly in 2024, although the bulk of this supply is accounted for by various foundry manufacturers (like United Microelectronics Corporation, Global Foundries, SOITEC). A number of data centres are also being built in the single-user factory space, notably the mammoth 170,000 sqm GFA data centre at Sunview Way by Malkoha Pte Ltd (Meta, parent of Facebook). The multi-user factory space supply pipeline ballooned to 766,000 sqm in 2Q 2023 from 579,000 sqm in 1Q 2023, primarily due to an increase in projects without planning approvals as iGLS supply for 2H 2023 was ramped up. However, some lead time is expected before the supply from the new iGLS sites hit the market.
Despite the strong overall demand for industrial space, businesses continue to face challenges due to ongoing inflation and elevated financing and labour costs. Manufacturing output has declined on a y-o-y basis for nine consecutive months through June 2023. The manufacturing climate has shown little signs of stabilisation, amid a Chinese recovery that has fallen short of expectations so far. We also expect trade tensions to rise and weigh on global trade going into 2024, as the US steps up with rhetoric against China in a presidential election year.
We remain sanguine for the warehouse sector. Warehouse rents are expected to lead rental growth with a growth forecast of between 6-7% in 2023, underpinned by a shortage of quality warehouse spaces and facilities due to the persistently strong demand for the storage of inventory and material, as a result of global supply chain disruptions. Notably, the increased demand from third-party logistics (3PLs) companies, life sciences, and food manufacturing sectors will play a vital role in boosting the need for ramp-up logistics.
We are sanguine on high-tech rents as well, with rents projected to rise by 6-7% in 2023, supported by resilient demand of technology and life science occupiers, as well as the new set ups by biotechnology and semiconductors industries in new high-tech spaces. With a growing trend towards quality and sustainability, we expect a rising inclination towards asset enhancement initiatives or redeveloping aging industrial properties into future-proof properties with improved specifications and sustainability features.
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