Monthly rent of multiple-user factory space remained in reverse gear for the second consecutive quarter in 4Q2015 as supply continues to outstrip demand. The average monthly gross rents fell by 2.3% q-o-q to $2.10 psf for first-storey factory space and 2.9% q-o-q to $1.65 psf for upper-storey factory space in the quarter, according to DTZ research. Overall, monthly rent of first-storey and upper-storey factory dipped by 4.5% and 5.7% in 2015.
JTC’s statistics reflected a decline in net demand for multiple-user factory space by 21% q-o-q, from 1.1 million sq ft in 2Q2015 to 872,000 sq ft in 3Q2015 amid a global slowdown in trade and consumption. Supply in 2015 was estimated at 4.2 million sq ft by DTZ, exceeding the 10-year annual average demand by more than a million sq ft. The addition of 4.6 million sq ft of multiple-user space in 2016, coupled with a weaker economic environment, is likely to put further pressure on industrial rents this year. According to the latest Purchasing Managers’ Index in January 2016, the manufacturing economy has contracted for six consecutive months since June 2015.
Separately, in 4Q2015, rent of business parks and hi-tech industrial space fell for the first time since 3Q2012. On average, the monthly gross rents of hi-tech industrial space slipped 1.5% q-o-q to $3.25 psf whereas rents of business parks slid 2.4% q-o-q to $4.98 psf in the same quarter. For the entire 2015, rents of business parks fell by 0.4% y-o-y, compared to a 6.8% y-o-y increase in 2014. On the other hand, overall growth in rents for hi-tech industrial space moderated to 1.6% y-o-y in 2015, compared to 3.3% y-o-y in 2013 and 3.2% y-o-y in 2014.
On the back of economy uncertainties, demand for business park space has fallen 21% q-o-q from 355,000 sq ft in 2Q2015 to 280,000 sq ft in 3Q2015. The healthy demand for Business Park and hi-tech industrial space in 1H2015 was driven by companies substituting quality business park space for office space to reduce cost. For example, Google will be moving out from the Central Business District (CBD) to Mapletree Business City II upon its completion in 2016.
Rents of business parks is expected to trend downwards in 2016 on the back of subdued business confidence coupled with an increase in supply of 1.5 million sq ft of lettable space. In addition, demand for industrial space may further weaken in the face of heightened competition from increase office supply and softened office rents in 2016.
Ms Cheng Siow Ying, DTZ’s Executive Director of Business Space, commented: “Although market conditions for business parks are anticipated to be weaker in 2016, it is an opportune time for companies with expiring leases to review their accommodation strategies and leverage on market conditions to upgrade to better quality space. Additionally, landlords are likely to be more pragmatic and flexible in packaging competitive lease terms to attract and retain tenants.”
DTZ cited that the recovery of the Chinese economy from its recent slowdown will be of key concern to manufacturing companies and their demand for industrial space in 2016. Dr Lee Nai Jia, Regional Head (SEA) of Research at DTZ, noted: “Most of the manufacturing companies are export-based and will be susceptible to external shocks, particularly from China, Singapore’s largest trading partner. Hence, most observers are closely monitoring the economies of China and its neighboring countries and whether they will rebound this year. If the Chinese economy recovers, Singapore’s exports and manufacturing economy will receive a boost, which will result in heightened demand for industrial space.”