Pandemic to dent demand, prices of Singapore industrial space after Q1

Q1 data reflects market conditions before 'circuit breaker'; pandemic expected to weaken demand

Fri, Apr 24, 2020

Nisha Ramchandani


THE coming quarters will bring downward pressure on prices and rentals for industrial space as the Covid-19 pandemic blunts demand, while project completion timelines could be delayed owing to disrupted construction activity.

In the first quarter of this year, prices and rents of industrial space in Singapore fell slightly, while occupancy remained flat, said industrial land and infrastructure agency JTC Corp, adding that the data does not capture the full impact of the outbreak.

JTC highlighted: "The Q1 2020 statistics reflected market conditions from January to March, before the circuit-breaker measures kicked in on April 7. Further, many of these transactions could have been pre-committed pre-Covid. This is in line with historical trends of past economic events such as the global financial crisis in 2008, where impact on industrial prices and rentals only started to show in the following quarter."

While January and February brought firm demand for good quality space in popular business parks and the warehousing market saw a boost in short-term leases to accommodate medical supplies and consumer items, occupiers grew cautious from March, noted Tay Huey Ying, JLL's head of research and consultancy. She added: "Many started to shelve expansion and relocation plans to avoid incurring capex during these uncertain times, opting instead to stay put and renew their existing leases. There were also many requests for rental rebates."

In Q1, the price index declined 0.4 per cent quarter on quarter, while the rental index dipped 0.1 per cent, led by multi-user factory segment in both cases.

Meanwhile, the occupancy rate for industrial space held at 89.2 per cent, buttressed by the multiple-user factory segment where the occupancy edged up 0.4 percentage point. On the other hand, occupancy levels fell across other segments, most notably at warehouses which clocked a 0.5 percentage point decline.

Compared to a year ago, the overall price index fell 0.7 per cent, while rents were flat and the occupancy rate dipped 0.1 percentage point.

Tricia Song, head of research (Singapore) at Colliers International, said: "We anticipate that demand for general factory spaces could remain weak in the near term as industrialists recalibrate their expansion plans and space requirements amidst bleak manufacturing outlook. The demand disruption could be tempered by delays in what would have been a sizable new supply for the remaining of 2020."

Colliers projects that overall factory rent will likely remain subdued with a slight decline by the end of the year, while rents in business park and high-spec segments could ease in the near term owing to the pandemic. However, rents for business park and the hi-specs segment could increase by 0.5-1 per cent year-on-year by the end of the year as business confidence begins to pick up, she added.

Desmond Sim, CBRE's head of research (South-east Asia), said: "Looking ahead, factory rents may exhibit a steeper decline against a backdrop of supply chain disruptions and an existing vacancy volume of 39.95 million square feet, while warehouse rents are likely to be partially cushioned by a limited supply pipeline and short-term demand for storage space."

In particular, the warehouse segment could fare better than others as e-commerce fuels demand for logistics services amid the circuit breaker and ongoing safe distancing efforts, analysts said. In the first quarter, warehouses were the only segment with higher rents as they edged up 0.2 per cent from the previous quarter.

Brenda Ong, head of logistics and industrial at Cushman & Wakefield, suggested that industrial rents could prove more resilient vis-a-vis the office market in the downturn, given the lower rent base. She also reckoned that the outbreak could speed up the adoption of automation and industry 4.0 technologies as it would enable industrialists to curb their dependency on manpower. This is turn would result in increased demand for high spec factory space.

The disruption in construction activity will also bring delays in completion for some projects. Between Q2 2020 and Q4 2020, about 2.1 million square metres (sq m) of industrial space was originally slated for completion as at end March, but this will likely be delayed, JTC said. About 37 per cent of the supply is single-user factory space, while multiple-user factory space accounts for another 40 per cent of the supply.

"The original plan would bring total new supply in full-year 2020 to 21.3 million sq ft (net), or 2.3 times higher than in 2019," noted Ms Song, adding that the delay could bring some relief to landlords and industrialists.

Meanwhile, transaction volumes in Q1 2020 fell by 29 per cent quarter on quarter and 38 per cent from a year ago, based on caveats lodged for industrial properties, according to JTC.

"Sales volumes are expected to remain muted, as the market takes a wait-and-see approach," said Ms Ong, adding that volumes are at the lowest since Q1 2009.