Engines supporting Singapore’s growth for Q1 2020
The COVID-19 pandemic, which erupted worldwide since January 2020, has impacted the country’s economy. However, the final figure reported for GDP decline was lesser than the initial flash estimate of 2.2 per cent year-on-year (y-o-y) decline for the first quarter. Singapore’s GDP contracted by 0.7 per cent y-o-y in Q1 2020 as preventive measures were implemented to contain the pandemic. While most sectors declined in Q1 2020, there were some clusters that still reported growth (Figure 1). Such was the case for the finance & insurance and manufacturing sectors. In this current pandemic situation where public health is of top priority, the biomedical manufacturing cluster was one of the key drivers of the manufacturing industry in Q1 2020.
Figure 1
Percentage contribution to growth in real GDP (y-o-y), Q1 2020
Source: Singstat, EDMUND TIE Research
Surge in demand for essential goods
Besides the biomedical manufacturing cluster, other industry trades such as merchandising essential goods and services have held up well. This is largely because of sporadic panic buying and stockpiling since the first quarter. The Circuit Breaker period, which was in place since 7 April to 1 June 2020, only approved essential services such as supermarkets, pharmacies and food & beverage operators that sell hot/cooked snacks or breads were allowed to remain open. As a result, the retail sales of supermarkets and hypermarkets cluster increased by 73.4 per cent on a y-o-y basis in April 2020 (Figure 2). The increase in groceries sales incentivized such retailers to stockpile and expand their warehouse facility to cater to the surge in demand.
Additionally, e-commerce sales grew appreciably since the start of 2020, as consumers stepped up their purchases online. The proportion of online retail sales spiked to 8.7 per cent and 17.8 per cent in March and April 2020 respectively, from previous average proportion of around 6 per cent in 2019 (Figure 3). That would lead to greater demand for warehouse space by e-commerce players to store their goods as online retailing becomes a key mode of shopping and purchase in the near term.
Figure 2
Retail Sales Index (April 2020)
Source: Department of Statistics Singapore
Figure 3
Retail sales value and online retail sales proportion
Source: Department of Statistics Singapore
Warehouse leasing gathered pace amid increased demand for stored goods
Demand for warehouse space is evidenced from a pick-up in leasing activity in the first quarter. The total transaction value of warehouses increased by 6.4 per cent q-o-q in Q1 2020, a recovery compared to 35.6 per cent q-o-q decline in Q4 2019 (Figure 4). Total number of tenancies for warehouses also increased by 2.6 per cent to 400 records in Q1 2020, a modest uptick despite the weakened market sentiment, compared to 13.5 per cent q-o-q decline in Q4 2019 (Figure 5). Median rents also showed a general uptick in Q1 2020, with median unit rent for warehouses in most regions having reported q-o-q increases in their rental performances, except for those in the Central Area (Figure 6 and Table 1).
Figure 4
Total transaction value of warehouses ($)
Source: JTC Space (as at 11 June 2020)
Figure 5
No. of Tenancies in Warehouses
Source: JTC Space (as at 11 June 2020), EDMUND TIE Research
Figure 6
Median Unit Rental of Warehouses
Source: JTC Space (as at 11 June 2020)
Table 1
Median Unit Rental change of Warehouses (Q-o-q %)
Source: JTC Space (as at 11 June 2020)
How would Industrial Space evolve in the new normal?
Against the backdrop of higher technology adoption and needs-based consumption, we expect the robust growth of e-commerce and essential goods and services to support the demand for logistics and warehouse facilities. The rising acceptance of food delivery services will also augment the growth of food factories and central kitchens as consumers are likely to stay cautious about dining out at restaurants after reopening. Together with government support for the digitalization of businesses, more industrialists are seeking to improve their work processes by employing technology in their various production methods. Industrial spaces that are efficient and flexible in adapting to the changing trends of the economy and adjusted demand from industrialists will stand to benefit in the long-run.
Riding on the stronger wave of e-commerce adoption in a post-COVID environment moving forward, Singapore’s continuous focus on advanced manufacturing through the development of the Jurong Innovation District (JID) and Punggol Digital District (PDD) is slated to gather pace. While the JID is envisioned to be the new hub for advanced manufacturing, the PDD is focused on the cybersecurity and digital industries. Upcoming known developments in the PDD and JID will comprise a total of 2.0m sq ft and around 1.3m sq ft of net lettable area respectively.
For instance, Cleantech Three in the JID is an expansion of Cleantech One and Two to focus on R&D and test-bedding for adoption of green technology and solutions. There is also a business park in the pipeline in PDD’s enterprise district, envisioned to house companies in the sectors of cybersecurity and Internet of Things. Singapore’s focus on these upcoming industrial parks will encourage more of such related tenants to set up bases here, and also incentivize more firms (including Small Medium Enterprises) to venture into such businesses, thereby fast tracking our progression up the industrial value-chain.
In the near term, global economic weakness and trade tensions could weigh on factory space demand. However, there are clearly bright spots in the industrial sector.
