Industrial rents up 2.1% q-o-q in 2Q2023; occupancy rises to 89.1%

Industrial property prices also grew last quarter, rising 1.5% q-o-q (Picture: Samuel Isaac Chua/The Edge Singapore)

SINGAPORE (EDGEPROP) - In 2Q2023, the overall occupancy rate for the industrial property market registered a slight increase of 0.3 percentage points from the previous quarter to hit 89.1%, according to data released by JTC on July 27. The growth was underpinned by the multiple-user factory and warehouse segments, with new demand exceeding supply.

Source: JTC 2Q2023 Industrial Properties Quarterly Market Report

“Although most manufacturing clusters contracted in June, occupancy levels were supported by demand from the transport engineering cluster,” remarks Leonard Tay, head of research at Knight Frank Singapore. He adds the cluster’s demand for warehouses to store inventory and materials amid global supply chain disruptions helped propel a 0.7 percentage point rise in occupancy for warehouses to 91%.

On a y-o-y basis, industrial property occupancy fell 0.9% y-o-y. JTC attributes this to a strong pipeline of new completions over the past year, with total available stock growing about 12.9 million sq ft, outpacing the 6.5 million sq ft increase in total occupied stock.

Buoyed by the quarterly growth in occupancy, rents for industrial properties charted a 2.1% increase q-o-q in 2Q2023. This marks an 11th consecutive quarter of expansion, with rents rising a cumulative 14.5% from the trough in 3Q2020, notes Tricia Song, CBRE’s head of research, Southeast Asia. However, the quarterly growth is slightly slower than the 2.8% logged in 1Q2023.

The increase in rents was led by the multiple-user factory segment which increased by 3% q-o-q, followed by rents for warehouse which rose 1.4% q-o-q. On a y-o-y basis, industrial rents grew 9.4%.

Source: JTC 2Q2023 Industrial Properties Quarterly Market Report

Industrial property prices also grew last quarter, rising 1.5% q-o-q. Lee Sze Teck, senior director of data analytics at Huttons Asia, note that this is on par with the growth recorded in 1Q2023. “The growth in prices appeared to have stabilised as investors resist higher prices against an uncertain economic backdrop and persistently high interest rate,” he comments. On a y-o-y basis, prices increased by 6.9%.

As of end-June, around 6.5 million sq ft of new industrial space is expected to be completed in 2H2023. Of the upcoming supply, single-used factory space makes up about 61%, warehouse space makes up 22%, while the remaining 17% comprises multiple-user factory and business park space.

Looking ahead, JTC expects demand for industrial space to stay strong despite economic uncertainties. “Nevertheless, as new supply continues to come on-stream, occupancy rates are likely to remain relatively stable,” it states in its latest quarterly report.

Knight Frank’s Tay believes that industrial prices and rents will remain similarly stable for the rest of the year. “As a modern, neutral and innovative business hub, Singapore's fundamentals offer international firms a flight-to-safety and flight-to-quality destination for investment and expansion that will facilitate growth when stability returns to the global economy,” he reasons.

Lam Chern Woon, head of research and consulting at Edmund Tie, cautions that the manufacturing sector – which has seen output decline on a y-o-y basis for nine consecutive months through to June – has shown little signs of stabilisation, as businesses continue to face inflation and higher financing and labour costs. “We also expect trade tensions to rise and weigh on global trade going into 2024, as the US steps up with rhetoric against China in a presidential election year,” he adds.

Nonetheless, he remains sanguine on the warehouse sector which he expects to generate full-year rental growth between 6% to 7%. This is underpinned by a shortage of quality warehouse spaces and facilities as well as increased demand. “Notably, the increased demand from third-party logistics (3PLs) companies, life sciences, and food manufacturing sectors will play a vital role in boosting the need for ramp-up logistics,” he says.

He has a similarly upbeat outlook for high-tech industrial spaces, backed by new set-ups by biotechnology and semiconductor firms, along with resilient demand from technology and life science occupiers.

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