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JTC Space @ Tuas (Image: SAA ARCHITECTS PTE LTD).
Prices, rents and occupancy rates of industrial space in Singapore all declined on a quarterly and annual basis during the first quarter of the year, the latest report from JTC shows.
In Q1 2017, its overall price index fell 2.2 percent quarter-on-quarter and 8.9 percent year-on-year, while the islandwide rental index dropped by 0.9 percent and five percent over the respective periods.
At the same time, occupancy level slid by 0.1 percent and 0.7 percent, whereas total supply rose by 0.4 million sqm versus the previous quarter and 1.8 million sqm compared to the corresponding period in 2016.
“Despite the manufacturing sector showing an improvement in Q1, the industrial property market remains subdued,” said Dr Lee Nai Jia, Research Head for Southeast Asia at Edmund Tie & Company.
In particular, data from JTC revealed that prices of single-user factory space fell the most in Q1 2017 at 12.3 percent on an annual basis. In terms of rent, the warehouse segment posted the largest correction of 6.1 percent year-on-year.
On the other hand, business park space bucked the trend, posting a 0.4 percent gain in rent and a 2.3 percent improvement in occupancy on a yearly basis.
According to Tay Huey Ying, JLL’s Head of Research & Consultancy in Singapore, the drop in overall industrial rents was unsurprising as total leasing transactions fell 9.2 percent to 1,826 in Q1 2017 versus 2,010 deals in the previous quarter, based on data from URA Realis as of 27 April.
“However, we are surprised by the one percent quarterly slide in JTC’s business park rental index, which reversed the previous quarter’s 1.2 percent rise, especially given the improvement in the average occupancy rate from 83 percent in Q4 2016 to 84 percent in Q1 2017, and no major business park supply for the rest of the year.”
Based on JLL’s own research, business park rents edged up by 0.3 percent on a quarterly basis in Q1 2017, underpinned by the reduction in vacant stock, limited new supply and the general uplift in economic sentiment.
Lee agrees that the rents of business parks are supported by a lack of upcoming supply. “Rents and occupancy of warehouses also showed signs of bottoming out, as the decline in rents moderated. Nevertheless, the substantial supply in 2017 is likely to exert pressure on rents.”
According to JTC, around 2 million sqm of industrial space, including 421,000 sqm of multiple-user factory space, is estimated to be completed in the next three quarters of 2017.
Given that this exceeds the average annual demand of about 1.3 million sqm and supply of 1.8 million sqm over the past three years, this is likely to drag down prices, rents and occupancy rates of industrial space, leading to lower business cost for industrialists.
There were also around 1,400 units in uncompleted strata-titled project available for sale as of 31 March 2017. With a combined area of about 330,000 sqm, this represented approximately three percent of the existing stock of multiple-user factory space. Moreover, around 2.3 million sqm of space is anticipated to enter the market after this year.
Looking ahead, JLL’s Tay believes that industrial rents would face further downward pressure in 2017, as about 2.0 million sqm of new supply is expected to enter the market this year, surpassing the 1.8 million sqm recorded last year.
However, the business park segment is expected to outperform the general market, given the dearth of major new space completions and the continued absorption of the available stock by the growth sectors.
Likewise, Edmund Tie & Company’s Lee thinks that the huge upcoming supply would drag down rents.
“Notwithstanding, we expect the rents to improve as more companies select Singapore as their global HQ given its infrastructure, security, and skilled labour. A case in point is Panasonic, which moved its global HQ for its refrigeration compressor business to Singapore.”
This article was edited by Denise Djong.
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