SINGAPORE, 27 October 2022 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on JTC Q3 2022 statistics for industrial property.
In 3Q 2022, both overall industrial prices and rents continued to climb upwards for the eighth consecutive quarter by 2% qoq and 2.1% qoq respectively. The multiple-user factory segment recorded the greatest rental improvement at 2.4% qoq, which was in line with the steady manufacturing performance, led by transport engineering and general manufacturing clusters, and sustained export growth.
Overall industrial leasing demand weakened in 3Q 2022 amid industrialists’ cautious sentiments and recorded a mere net absorption of -6K sqm from 399K sqm in the previous quarter, which was the first time that net absorption hit the negative territory since 4Q 2019. Although the multiple-user factory segment took up 61K sqm of space which was likely due to the completion of the final phase of JTC Defu Industrial City, some 84K sqm of single-user factory space was shed possibly due to stock obsolescence. Based on the major project completions in 3Q 2022, such as the additions/alterations to Wilmar Foods and new factory spaces by Neo Garden Catering and F&N Foods, the F&B sector likely contributed to a significant share of absorption.
Islandwide occupancy fell slightly by 0.3% pts qoq to 89.7% in 3Q 2022, reversing from the 0.2% pts increase experienced in the previous quarter, as mounting cost pressures and rising interest rates forced some industrialists to scale back or consolidate their space requirements. Notably, the business park segment was the only segment which experienced improvement in occupancies, supported by strong occupier demand which may be attributed to the spillover demand from the current tight office supply situation.
The overall industrial pipeline remains relatively tight. As of Q3 2022, approximately 36% of the supply pipeline (2022 to 2026) will be completed in 2023, followed by another 31% in 2024. While we expect the manpower crunch in the industrial sectors to be gradually alleviated as border easing continues, the rising cost pressures may lead to foreseeable completion pushbacks of some projects, especially those with expected completion this year or next year. For instance, such projects include Bulim Square (from 2024 to 2026), JTC Space @ AMK (from 2023 to 2024) and Mapletree Industrial Trust’s multiple-user factory at Kallang Way (from 2022 to 2023). In the near to mid-term, the greatest supply pressure is felt on the single-user factory segment (52% of supply pipeline), though it is likely to experience strong take-up by industrialists for their own application.
The pandemic and the current climate, including the recent US export restrictions on advanced chips and chip equipment to China, have accentuated the importance of supply chain resilience, as industrialists embark on various strategies to manage inventories and mitigate risks, including investments in analytics, technology and sustainability solutions. Investments in superior logistics technology will continue to bolster demand for modern warehouse and logistics spaces, as businesses cater to the increasing demands of consumers for shipping.
Recent continued investment commitments by global heavyweights such as Pall Corporation (semiconductor), MSD, WuXi Biologics and WuXi AppTec in the pharmaceutical space, attest to Singapore’s status as an attractive regional hub for high-value manufacturing and R&D innovation amid economic uncertainties and competition. We do expect significant multiplier effects relating to job creations and business opportunities for supporting industries along the value chain.
The sharper-than-expected global economic slowdown and increasing uncertainties amid the protracted Russian-Ukraine conflict, supply chain disruptions, lingering impact of COVID-19 pandemic as well as high inflation and rising interest rates may limit the strength of industrial demand recovery. In addition, the global electronics cycle slowdown could weigh on the growth of the manufacturing sector. For the first time since Q3 2020, local manufacturers surveyed have turned gloomy on their business outlook for the next six months. Coupled with the dimmer outlook for exports, it may have implications on multi-user factories’ performance. The refreshed industry transformation maps (ITMs) for the five advanced manufacturing and trade sectors – electronics, precision engineering, energy and chemicals, aerospace, and logistics – have highlighted the need for companies to stay ahead of the curve in the face of the dynamic global environment.
The upward trend seen in overall industrial rental over the past eight quarters is expected to moderate in the coming months amid a softer manufacturing outlook, although the demand-supply dynamics are still fairly healthy for the multiple-user factory space segment. Despite the softer outlook by e-commerce players, we maintain our forecast that warehouse spaces could witness up to 7-8% rental growth for the year, supported by sustained demand amid protracted supply chain disruptions. With a limited supply pipeline, rents of business parks located in the central region are anticipated to rise by 3.2% this year, given the full back-to-office workforce and the office market 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.
For further information, please contact:
Seah Li Ching (Ms)
DID: +65 6393 2369