SINGAPORE (EDGEPROP) - The first quarter of this year saw island-wide industrial prices fall by 0.4% compared to the previous quarter, while overall industrial rents dropped by 0.1% q-o-q, based on the latest statistics by JTC released on April 23.
According to Brenda Ong, head of logistics and industrial at Cushman & Wakefield, “The drop in prices and rents do not fully reflect the full impact of Covid-19, given that stricter social distancing measures were implemented in April and many of these transactions could have been committed before Covid-19.”
The single-user factory rental index dipped by 0.2% q-o-q, while the multiple-user factory rental index fell sharply by 0.4% over the same period.
According to Desmond Sim, head of research of Southeast Asia at CBRE, “The drop in factory rents is a snap indication of weakening sentiments which are possibly centred around the tail-end of the quarter. Looking ahead, further declines in factory rents can be foreseen in view of the challenging market outlook.”
He adds that factory rents could experience a steeper decline against a backdrop of supply chain disruptions, as well as an existing vacancy volume of 39.95 million sq ft. But warehouse rents are likely to be partially cushioned by a limited supply pipeline and short-term demand for storage space, says Sim.
Table: JTC
Meanwhile, overall industrial occupancy rates remain relatively high at 89.2% and unchanged from 4Q2019. However, sales of factory and warehouse properties cooled on the back of more cautious market sentiments. There were only 179 transactions, making it the lowest quarterly level of industrial strata sales since 1Q2009 which recorded 161 sales.
“Sales volumes are expected to remain muted as the market takes a wait-and-see approach. The [industrial] market will likely trend lower over the year, as the impact of two months of strict social distancing measures filter through,” says Ong.
According to Tay Huey Ying, head of research and consultancy at JLL Singapore, “firm demand for good quality space in the popular business parks was observed in the first two months of 1Q20, [while] the warehousing market experienced an increase in activity for short-term leases to accommodate medical supplies and consumer items as safety concerns and movement controls fuelled a spike in e-commerce.”
But she says that the tail-end of March also saw industrialists shelve expansion and relocation plans, opting to renew existing leases and submit requests for rental rebates.
Factory rents could experience a steeper decline against a backdrop of supply chain disruptions, but warehouse rents are likely to be partially cushioned by a limited supply pipeline. (Picture: Samuel Isaac Chua/The Edge Singapore)
According to Ong of Cushman & Wakefield, a recession is likely on the cards for Singapore, but industrial rents could be more resilient compared to other local sectors. Bright spots in the industrial market could come from biomedical, e-commerce, logistics, and distribution companies, she adds.
She points out that central region office rents fell by 26.1% from 4Q2008 to 3Q2009 during the height of the global financial crisis, compared to industrial rents which dropped by 16.8% over the same period.
The covid-19 pandemic is also expected to accelerate automation adoption and smart manufacturing processes in Singapore and reduce future dependency on human workers, says Ong. “This trend translates into higher demand for high spec factory space which are able to support these operations,” she says.
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