Upcoming supply of Singapore industrial space may moderate price, rental growth

Oct 28, 2021

THE significant supply pipeline of industrial properties in Singapore and ongoing economic and business risks may cap the strength of the sector’s recovery, at least for the rest of the year, analysts said.

This comes as JTC Corp’s latest market report showed that rents and prices of industrial space increased again for Q3 2021, marking the fourth straight quarter of marginal growth.

On Thursday (Oct 28), the industrial land and infrastructure agency said in its report that prices and rentals are likely to remain stable, “with positive upsides in the near future if the economy recovers strongly.”

Tay Huey Ying, JLL head of research and consultancy, Singapore, foresees island-wide rents clocking a full-year growth of up to 3 per cent in 2021. The anticipated rise in new supply could also limit rental growth to within 5 per cent in 2022, she said.

Similarly, Knight Frank Singapore head of research Leonard Tay noted that the impending supply will keep factory price and rental growth in check for Q4 2021. He expects a 2 to 4 per cent increase for the whole of this year.

Next year, a 3 to 5 per cent growth in prices and rents may be possible as the country stabilises from the pandemic fallout, even though the amount of upcoming industrial space remains “substantial”, he added.

Lam Chern Woon, head of research and consulting at Edmund Tie, pointed out that trade momentum could ease in the coming months as major economies prepare for policy normalisation, supply-chain bottlenecks linger and China’s growth slows.

“Businesses are thus expected to be cautious with their space requirements,” he said. “However, we see firm expansion from firms in certain clusters such as pharmaceuticals, electronics, precision engineering and logistics.”

In line with the economy’s broad recovery, Q3 2021 rents and prices of industrial properties in Singapore continued their uptrend, while delays in completion persisted. The rental index of all industrial properties rose 0.7 per cent from the second quarter, JTC figures showed. Year on year, rents grew 1.9 per cent.

Meanwhile, the overall price index inched up by 0.1 per cent quarter on quarter, but climbed 3.9 per cent from the year-ago period.



This also came as more industrial properties changed hands. Based on caveats lodged, there were around 411 transactions in the last three months, up 15 per cent from Q2 2021 and jumping 28 per cent from Q3 2020.

Lam noted that the bulk of the demand for industrial space was driven by the business-park segment, amid rising demand for research and development operations.

As for the upcoming supply, about 0.9 million sq m of new industrial space could be completed in the last quarter of this year, based on approved plans as at end-September 2021, JTC said. Of this, some 45 per cent will be single-user factory space, 39 per cent will be multiple-user factory space, and the remaining 16 per cent will comprise warehouse and business park space.

CBRE research head for South-east Asia, Tricia Song, highlighted that two-thirds of 2022’s supply pipeline are single-user factories and warehouses. “CBRE Research understands that pre-commitments for upcoming warehouse developments have been strong… In the near to medium term, choice spaces for occupiers will remain limited.”

Between 2022 and 2024, an additional 3.6 million sq m of industrial space is expected to be completed. This amounts to an average annual supply of about 1.4 million sq m, from now till end-2024, which is higher than the average of 0.7 million sq m over the past 3 years.

While JTC projected demand for industrial space to grow, it noted that any potential rise in occupancy may be tempered by new completions. In turn, this increase in supply will depend on the delays in expected completions.

Occupancy for all industrial properties in Q3 2021 was flat over the previous quarter at 90.1 per cent, although it improved by a mild 0.5 percentage point on a year-on-year basis.

Knight Frank’s Tay said the manufacturing sectors remained on a growth path, supported by output in nearly all clusters. “This contributed to the 2.4 million square feet (sq ft) of net new demand in industrial space, roughly matching net new supply, keeping the overall industrial occupancy rate unchanged from the previous quarter,” he added.



By segment, multi-user factories and warehouses were the star performers in terms of occupancy rates, with absorption exceeding new supply. Multi-user occupancies rose to 89.8 per cent this Q3, the highest in 8 years; warehouse occupancies reached a 5-year high of 90.1 per cent, Lam said.

Interest in multi-user factories was buoyed by semiconductor and biomedical activities. Lam anticipates modern and high-spec properties to enjoy a further uplift in demand as the nation moves up the manufacturing value chain.

As for warehouses, demand was fuelled by the shift towards stockpiling, e-commerce and online grocery shopping. “Consequently, rents of warehouses rose the most, by 1.7 per cent quarter on quarter,” he added.

CBRE’s Song has observed “extremely tight” availability for prime logistics space, with demand for storage space benefiting second-tier warehouses. “Occupier activity comprised new set-ups and expansions in third-party logistics, food storage and electronics sectors,” she said.

Total available stock of industrial space expanded by 228,000 square metres (sq m) this Q3, slowing from the quarterly growth of 374,000 sq m growth in Q2, JTC’s figures showed.

JLL’s Tay expects occupier demand for industrial space to stay healthy for the rest of 2021 and 2022, driven by requirements from growth industries such as the food, electronics, media, e-commerce, technology and life science sectors.