SINGAPORE, 26 January 2023 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on the JTC Q4 2022 industrial property statistics.
In 4Q 2022, the industrial market saw the completion of 486,000 sqm of space, the highest since 4Q 2017. Completions during the quarter were concentrated in the electronics and food manufacturing sectors, e.g. factory spaces of Global Foundries, Tee Yih Jia Food Manufacturing and Paradise Group.
Overall industrial demand of 733,000 sqm was recorded in 2022, broadly similar to 2021’s 744,000 sqm. 4Q 2022 saw industrial demand recover to 268,000 sqm, from -5,000 sqm in the previous quarter; nonetheless, it failed to keep pace with supply, leading to a decline of 0.3% pts in the occupancy rate. However, industrial prices and rents continued to grow for the ninth consecutive quarter. The dichotomy between rising rental/price performance versus overall occupancies reflects an increasingly polarised industrial structure where quality assets are highly sought after, driving up rents.
The segmental analysis suggests that the industrial sector climate is still relatively healthy, as the shortfall in quarterly absorption relative to supply was largely concentrated in the single-user factory space segment. Despite a slowdown of the manufacturing sector growth to 2.5% in 2022 from 13.3% in 2021, multi-user factory space demand kept pace with new supply in 4Q 2022. For 2022, the occupancy rate in this segment fell by just 1.1% pts, a commendable performance, in light of the sharply deteriorating external environment.
Amid protracted supply disruptions and continued e-commerce momentum, the warehouse sector continued to outperform, with net absorption of 91,000 sqm in 4Q 2022, a sharp increase from 15,000 sqm in the previous quarter. In particular, warehouse was the sole segment which recorded improvements in occupancies during the quarter. Despite some new warehouse completions in the quarter, overall warehouse stock shrank by 9,000 sqm; this is likely due to the removal of some stock for modernisation to fit modern logistics needs.
Looking ahead, the upcoming supply is largely concentrated in 2023 and 2024, and the supply-demand dynamics remain relatively healthy for multi-user factory and warehouse spaces. The industrial outlook will undoubtedly be softer in 2023, given the weaker external environment and a firm supply pipeline. Industrialists are expected to remain cautious and leasing demand from outward-oriented sectors, such as electronics and manufacturing, will likely weaken, weighed down by the global semiconductor downcycle. On the whole, we expect softer rental growth for this year compared to 2022.
Although the electronics and precision engineering clusters are expected to take a backseat for 2023, other clusters are expected to help take up some slack. The food manufacturing segment is expected to grow; in particular, demand for cloud kitchen spaces with the continued popularity of food delivery platforms. High-value manufacturing industries, such as MedTech and GreenTech, are also poised to help sustain demand. Another bright spot is from the transport engineering cluster, as the global air travel recovery gains momentum. Last but not least, the relaxation of China’s COVID restrictions could prove to be a wildcard, providing a shot in the arm for the manufacturing industry at large.
We remain bullish on the warehouse and hi-tech segments, with rents projected to rise by 6-7% in 2023. The growth of the warehouse segment remains driven by industrialist’s emphasis on supply chain resilience, amid the protracted supply chain disruptions and heightened stockpiling requirements. Recent continued investment commitments by global heavyweights such as MSD (pharmaceutical) and Applied Materials (semiconductor) attest to Singapore’s status as an attractive regional hub for high-value manufacturing and R&D innovation, amid economic uncertainties and competition. Given the nation’s firm net-zero commitment and rising green demands by occupiers and investors, we expect a continual redevelopment of ageing assets into future-proof properties with higher specifications and sustainability features.
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