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As demand for industrial property spaces slows, challenging times ahead are expected for the industrial market. However, property consultancy CBRE said, despite headwinds this year, there are some bright spots in the market.
In a recent report, CBRE revealed that factory and warehouse rents in Q1 fell by 1.7 percent and 2.3 percent on an annual basis, respectively.
Marking their third straight quarter of declines, leasing volume for such properties extended their downtrend during the quarter under review, amidst the weak manufacturing output that contracted for the 13th consecutive month in February.
Given the subdued manufacturing environment, occupiers held off expansion plans while relocations dwindled, noted CBRE. Tenants also focused largely on optimising operations and reducing cost.
In particular, companies from the oil & marine sector were the most affected due to a rout in oil prices. Some of these firms have started to scale down manpower while others have opted to consolidate their businesses in cheaper locations.
On the industrial property investment front, there were more vacant possession sales over the past few quarters as previous occupiers either relocated overseas or consolidated operations in a single site. For example, Teijin, as well as Tate & Lyle, closed their business in Singapore in the past year, while KTL Global transferred to Johor.
“This number is likely to rise as more end-users who are unable to comply with the 70-30 sublet rule move out of their facilities,” it said. Although this will result in more saleable assets, there would be few willing buyers, given the sluggish rental market and the government’s cooling measures.
Consequently, CBRE’s preliminary tally for industrial property investment transactions in Q1 2016 hit S$131.72 million, representing a plunge of 75.4 percent year-on-year and a drop of 82.4 percent on a quarterly basis.
Nevertheless, interest in establishing data centres in Singapore remains strong, given its well-established infrastructure and strong connectivity, said Brenda Ong, CBRE’s Executive Director for Industrial & Logistics Service.
“LinkedIn’s recent announcement that it is setting up a data centre spanning 23,500 sq ft in Jurong, its first data centre located outside the US, is a strong indicator of the outlook for data centres.”
On the other hand, the growth of the industrial and logistics space segments is expected to be mainly driven by the booming commerce scene and the rising demand for properties capable of handling specialised cargo such as pharmaceuticals and chemicals.
Furthermore, the fundamentals of Singapore’s logistics market remains healthy in light of the republic’s status as a global logistics hub. The industry is also expected to benefit from greater regional integration through the ASEAN Economic Community (AEC).
Nikki Diane 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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