The fall in overall occupancy is due to new project completions in 1Q2023 as new industrial supply continues to exceed demand, says JTC. (Picture: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - In 1Q2023, the overall occupancy rate for the industrial property market fell to 88.8%, according to the latest quarterly market report by JTC. This is a fall of 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.
The fall in overall occupancy is due to new project completions in 1Q2023 as new industrial supply continues to exceed demand, says JTC. The statutory board says that around 10.76 million sq ft of new industrial space is expected to be completed for the whole of 2023. Of the upcoming supply, single-user factory space makes up about 62%, warehouse space makes up 21%, while the remaining 17% comprises multiple-user factory and business park space.
As a result, the end of 1Q2023 saw total available industrial real estate stock increased to around 3.84 million sq ft, while total occupied stock increased by 53,820 sq ft in 1Q2023 compared to the previous quarter.
Source: JTC
Notwithstanding the drop in occupancy, prices and rentals have continued to rise amid inflationary pressures. For example, the overall price of industrial space increased by 1.5% q-o-q in 1Q2023 and 6.9% on a yearly basis. Meanwhile, industrial rents grew 2.8% q-o-q in 1Q2023 and 8.8% y-o-y.
Moreover, the rise in industrial prices and rents in 1Q2023 continued to be supported by “new, innovative and diverse manufacturing activities” that have started operations or are planning to, says Leonard Tay, head of research at Knight Frank Singapore.
One example is Hyundai Motor Group’s Innovation Centre that started operations at Jurong in April 2023 with the production of electric vehicles. The establishment is Singapore’s first vehicle assembly plant.
Source: JTC
According to Tay Huey Ying, head of research and consultancy, JLL Singapore, warehouse rents posted a strong quarterly growth of 2.9% in 1Q2023. This was likely fuelled by a persistent supply crunch in this sector, and islandwide warehouse vacancy stays below the pressure point of 10% for the eighth consecutive quarter, she says.
On the other hand, the rental indices for multiple-user and single-user factories each increased by 3.0% q-o-q. This means that factories stand out as the segment with the highest rental growth in 1Q2023.
However, with an expected spike in supply for high-specification factory space and slowing demand on the back of a tempered manufacturing outlook, rental growth is expected to moderate going forward, says Catherine He, head of research, at Colliers.
Where business parks are concerned, He of Colliers points out that that rents in this segment have grown 0.6% q-o-q in 1Q2023, with newer assets in the city-fringe outperforming older assets across the island. She adds that demand for business park space is expected to slow in light of prevailing macroeconomic conditions and higher supply coming onstream this quarter.
Looking ahead, a slowdown in the manufacturing sector and lacklustre export performance over the coming months will coincide with a surge in new factory supply this year. This could result in slower rental growth of around 1.0% for conventional factories in general, says Brenda Ong, executive director for logistics & industrial at Cushman & Wakefield.
Under the current economic environment, landlords with newer and quality assets will be better positioned to weather through the market uncertainty,” says Tricia Song, head of research, Southeast Asia at CBRE.
With choice spaces remaining limited, further rental increases in the near term can be expected, especially for prime logistics space. However, for landlords of older developments, they may consider embarking on asset enhancement initiatives and redevelopment works to remain relevant or offer incentives to retain tenants, says Song.