Prices and rentals of industrial space remained stable on the whole in the fourth quarter of 2018, according to the latest statistics from JTC released on Jan 24. Both the price index and rental index of the overall industrial property market remained unchanged compared to the previous quarter.

The signs of stabilisation occurred after 14 consecutive quarters of decline. Tricia Song, head of research for Singapore at Colliers International, says this implies a bottoming industrial market with the last quarter’s all-industrial rental index 13.7% below the 2Q2014 peak.

Single-user factories showed the best q-o-q improvements in both the price and rental indexes, by 0.3% and 0.6% respectively. It was, however, the multiple-user factory segment that enjoyed the biggest q-o-q rise in occupancy rates in the industrial real estate market. It improved by 1%-point to 86.5% in 4Q2018. While the overall occupancy rate in industrial property improved, by 0.2%, it was at a slower rate than in the previous quarter.

"While data has shown that the industrial market is reaching equilibrium, it is not across all segments with a stronger preference for industrial assets that are well located and with better specifications,” says Brenda Ong, executive director of industrial and logistics services, CBRE.

Market forecasts

The total industrial stock completion in full-year 2018 was relatively low at 5.8 million sq ft (net lettable area), including 2.7 million sq ft (net) of warehouse space, says Colliers’ Song. The total industrial stock completion is a 72% fall from the record supply of 20.9 million sq ft (net) of industrial space across all types completed in 2017.

JTC forecasts new supply in 2019 to increase to 16.2 million sq ft (gross), with 64% in single-user factory. Assuming an efficiency rate of 80 to 90%, around 13 to 14 million sq ft (net) of industrial space across all types is expected to come on-stream in 2019, Song adds.

ZACD Group’s executive director, Nicholas Mak, says that based on the historical annual three-year demand of factory space of 940,000 sq m (10.12 million sq ft) per year, there could be a “temporary oversupply” this year. “The Singapore industrial property price and rental indices should continue to stabilise in 2019 with some slight downward pressure due to the strong supply of new completions and economic concerns,” Mak adds.

Come 2020, the expected new supply of 912,000 sq m (9.82 million sq ft) of factory space should be absorbed readily by the market based on the historical absorption rate, assuming that Singapore’s economy continues to grow steadily, notes Mak.

On industrial rents, Dominic Peters, senior director of industrial services at Colliers International, expects recovery to be “two-tiered”; high-specification and business park space will fare better “due to the spillover effect from a sharp office rent recovery in 2018 and further office rental upside in 2019.” .

“While we expect demand for logistics properties to improve in 2019, with e-commerce as one of the key drivers, the market continues to struggle with absorbing the large amount of supply completed in 2017 to 2018,” he adds.

While warehouse vacancy has improved, it has remained elevated at 10.5% as at end-December 2018. New logistics supply will remain robust in the near term, with 2.1 million sq ft (equivalent to 1.8% of current stock) expected to be completed in 2019. “We expect logistics rents could remain weak in the first half of 2019 before recovering 1-2% towards end of 2019,” says Peters.

Following the completion of two data centres in 4Q2018, more major data centre projects are expected in the coming years, notably the ones built by Google, ST Telemedia Global, Equinix and Facebook.