Industrial rents rise 1.7% q-o-q as prices and occupancy rate moderate in 1Q2024

Industrial rents rose by 1.7% in 1Q2024, despite a 0.3% fall in overall occupancy and a 0.2% dip in overall prices compared to 4Q2023, according to JTC’s quarterly market report for 1Q2024.

The 1.7% rental growth marks the 14th consecutive quarterly increase.. The rise in rent was led by business parks and single-user factory space, which grew 2.1%, respectively.

For the business park segment, the 2.1% q-o-q growth in 1Q2024 is an acceleration from the 0.3% q-o-q increase in 4Q2023 and is likely to be driven by selected deals in premium spaces, says Tricia Song, CBRE head of research for Singapore and Southeast Asia.

CBRE’s Song points to the rents in one-north, which increased the most last quarter, up 16.3% q-o-q. However, she adds that the overall demand for business parks has remained cautious.

The warehouse and multiple-user factory segments also rose this quarter, reporting a 2% and 1.3% increase, respectively. “Demand for high-spec warehouse space in ramp-up developments remains resilient," says Song.

While some occupiers have shown resistance to increasing rents, she notes that they remain keen on new projects, for instance, 4 Benoi Crescent, which was fully leased upon completion.

Multiple-user factory rents showed the highest y-o-y growth, rising 8.9% compared to 1Q2023. Warehouse rents grew by 7.5%, followed by single-user factories and business parks at 6.1% and 5%, respectively.

However, rental transaction volume fell by 9% y-o-y, which Lee Sze Teck, senior director of data analytics at Huttons Asia, attributes to a weakening demand for industrial spaces. Growth in the manufacturing sector slowed to 0.8% y-o-y in 1Q2024, a drop from the 1.4% y-o-y growth in 4Q2023, he says. In comparison, flash estimates put Singapore’s overall economic growth for 1Q2024 at 2.7%.

Demand drops

Demand for industrial space in 1Q2024 contracted by 19,000 sqm (204,516 sq ft) for the first time since 4Q2022, adds Huttons’ Lee. Coupled with the large completion of 126,000 sq m (1.36 million sq ft) of industrial space, the occupancy rate of industrial space eased by 0.3 percentage points to 88.7% in 1Q 2024.

Weakening demand was also reflected in transaction prices, which fell 0.2% across all segments in 1Q2024. It marks the first time prices have fallen after 13 straight quarters of price growth. The drop was underpinned by the single-user factory space, which fell 1%. Prices in the multiple-user factory segment saw a growth of 0.5% since the start of the year.

JTC data showed that the Islandwide industrial vacancy rate climbed to 11.3% in 1Q2024, the highest in 23 quarters. Tan Boon Leong, executive director of logistics & industrial, JLL, attributes it to the near doubling in new space from 65,000 sq m (699,660 sq ft) in 4Q2023 to 127,000 sq m (1.37 million sq ft) in 1Q2024.

On an annual basis, industrial prices reported an overall growth of 3.3%, led by multiple-user factories which grew by 4.6% since 1Q2023. Prices of single-user factories also grew by 1.8% y-o-y.

Overall sale transactions for industrial properties also dropped 2% y-o-y. CBRE’s Song attributes the fall to more buyers and manufacturers adopting a cautious approach to purchases.

“While investors generally expect interest rates to come down by year-end, the uncertainty over the timing of these interest rate cuts could have dampened sentiment for some investors,” say Huttons’ Lee.

Occupancy rates, new supply

Occupancy rates also fell across the board last quarter except for multiple-user factories which maintained its 90.5% occupancy rate. Occupancy in single-user factories fell by 0.2% to 87.8%, and business park occupancy fell by 0.4% to 78%.

Warehouse occupancy fell the most last quarter, with a 0.5% drop to 91.1%. Compared to the same period last year, this reflects a drop of 0.1% in occupancy rates across all segments.

JTC attributes the fall in occupancy to an increased supply in the market last quarter. Over 126,000 sqm (about 1.36 million sq ft) of new industrial supply was introduced in 1Q2024, a 0.2% increase from the previously available stock. This brings the total available supply as of end-March to 53 million sqm (570.5 million sq ft).

About 1.6 million sq ft more industrial space is due for completion for the rest of 2024, which is higher than the average new supply of 1 million sq ft, seen in the last three years. Demand for industrial space over the same period averaged at 600,000 sq ft.

As new supply comes onstream, landlords may have to soften rents and be more flexible to smaller space requirements to remain competitive, says Catherine He, head of research at Colliers Singapore. Currently available older stock may also undergo redevelopment or refurbishments as the market continues its flight to high-quality modern facilities, she adds.

Colliers forecasts overall industrial rents in 2024 to grow between 3% to 5%, while overall prices is projected to grow between 1% and 3%.