Industrial rents climb 1.5% in 1Q2023, new supply erodes occupancy to 88%

In 1Q2023, the overall occupancy rate for Singapore’s industrial property market fell to 88.8%, down 0.6 percentage points compared to the previous quarter and a decline of 1.0 percentage points compared to the same period a year ago, as reported by JTC’s latest quarterly market report.

The fall in occupancy is mainly attributed to new project completions in 1Q2023. According to JTC, 10.76 million sq ft of industrial space is estimated to be completed across Singapore in 2023. Of this, the majority (62%) comprises of single-user factories, followed by warehouses (21%), and multiple-user factories/business parks (17%).

At the end of 1Q2023, total available industrial real estate expanded to around 3.84 million sq ft, with an increase of 53,820 sq ft in occupied stock compared to the previous quarter.

Prices and rentals continued to rise in the quarter, even as occupancy rate fell. Overall prices of industrial space went up by 1.5% on a quarterly basis and 6.9% annually. Meanwhile, industrial rents climbed 2.8% q-o-q and 8.8% y-o-y.

The rise in pricing is possibly in response to “new, innovative and diverse manufacturing activities” that have either started operations or are looking to do so, explains Leonard Tay, head of research at Knight Frank Singapore. One example is Hyundai Motor Group’s Innovation Centre that began production of electric vehicles in Jurong in April 2023.

The rental index for warehouse space registered a significant quarterly growth of 2.9%, likely due to supply crunch in this segment. Steep competition from new supply of multiple- and single-user factories resulted in a rental increase of 3.0% for each.

Business parks here have registered a milder growth of 0.6% q-o-q in 1Q2023, with newer assets in the city-fringe recording higher performance than older assets across the island. Demand here is expected to slow due to macroeconomic challenges and more supply coming onstream this quarter.

Bukit Timah is being rejuvenated with The Myst CDL plans to improve connectivity, add green spaces, and transform old railway tracks into a community space.

Going forward, slowdown in manufacturing and exports will coincide with a spike in new factory supply. This could lead to slower rental growth of around 1.0% for conventional factories in general, anticipates Brenda Ong, executive director for logistics & industrial at Cushman & Wakefield.

However, landlords of newer, quality assets may still benefit from rental increases in the near future, particularly for prime logistics space. For landlords of older developments, asset enhancement initiatives and redevelopment works can help maintain appeal and sustainable occupancy for their properties, suggests Tricia Song, head of research, Southeast Asia at CBRE.