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Sales of strata factories and warehouses plunged to 307 units in Q1 2015, representing a quarterly and year-on-year drop of 42.4 percent and 41.2 percent respectively, according to Savills citing government data.
The significant decline is attributed to rising labour costs, weak commodity prices, Singapore’s poor manufacturing performance and uncertainty as to the timing of the US Federal Reserve’s interest rate hike.
Consequently, prices of upper-storey factory and warehouse units during the first quarter dipped by 3.2 percent quarter-on-quarter to S$463 per sq ft for 60-year leasehold units, and down 2.3 percent to S$658 per sq ft for freehold units.
Meanwhile, prices of 30-year leasehold units inched up by 0.6 percent to S$377 per sq ft on a quarterly basis.
Despite the market’s gloomy sentiment, leasing transactions rose 6.6 percent to 1,868 in Q1 2015 compared to the 1,752 deals seen in the corresponding period a year ago. However, the figure for the first quarter is 9.8 percent lower than the 2,071 deals recorded in Q4 2014.
“The slight rise in leasing deals year-on-year may have come from newly-completed projects as well as pre-commitment leases in many other upcoming projects,” said Savills.
However, the significant pipeline coupled with the current available stock has created an increasingly competitive leasing market with landlords forced to lower their rental expectations in order to secure tenants. With this, monthly rents dropped by 5 percent to S$1.85 per sq ft from S$1.95 per sq ft in the preceding quarter.
Over at the business park segment, 59 leasing deals were inked in Q1 2015. Although this translates to an 11.9 percent fall from the previous quarter, the level of demand remained steady as the sector’s island-wide vacancy rate declined by 3.2 percentage points in the first quarter.
The improvement in vacancy rate was achieved despite the new supply of about 1.56 million sq ft from completed projects in One-North, Science Park and Changi Business Park in Q4 2014. “Therefore, the drop in vacancy rate represents a healthy take-up of the new business park space,” noted the consultancy.
Moving forward, 6.44 million sq ft of warehouse space and 16.99 million sq ft of factory premises are expected to enter the market for the remainder of 2015. Given their respective five-year historical average annual absorption of 3.32 million sq ft and 7.85 million sq ft, sales and leasing activities are likely to be sluggish due to the huge gap between supply and demand amidst a pessimistic manufacturing outlook.
Although Singapore’s manufacturing sector could be negatively affected by China’s slowing economy, demand for warehouse space is forecasted to rise as manufacturers’ inventories grow and with the logistics sector still performing well.
In the business park segment, 2.17 million sq ft of space are expected to be completed this year and another 2.11 million sq ft by 2016. This upcoming supply is expected to be absorbed in light of Singapore’s push to expand its tech and innovation industry. Another driver is the strong demand from biomedical companies as well as the Technology, Media & Telecommunications (TMT) industry.
But to remain competitive, landlord must offer industrial spaces capable of fulfilling the needs of thriving industries and businesses, said Alan Cheong, Senior Director of Savills Research Singapore.
“The stagnation felt by traditional technology companies, in contrast to the rise of social media and new paradigm manufacturing firms, is beginning to be felt in the demand for industrial space, leaving perhaps only those buildings that meet the sunrise industries spatial demands thriving in the foreseeable future,” he added.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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