Industrial rents and prices post 12th consecutive quarter of growth in 3Q2023

October 26, 2023 6:05 PM SGT

Industrial rents rose 2% q-o-q in 3Q2023, while prices grew 1.4% q-o-q (Picture: Samuel Isaac Chua/The Edge Singapore)

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SINGAPORE (EDGEPROP) - Statistics released by JTC on Oct 26 show that industrial rents and price continued their upward trajectory in 3Q2023, with the all-industrial rental and price indices rising 2% and 1.4% q-o-q respectively. This marks the 12th consecutive quarter of growth since 4Q2020 for both indicators.

Source: JTC 3Q2023 Industrial Properties Quarterly Market Report

The growth last quarter comes despite GDP for the manufacturing sector contracting 5% y-o-y in 3Q2023, while non-oil domestic exports shrank 13.2% y-o-y in September. “Even though manufacturing output and contribution to GDP contracted during the year, industrial real estate indicators of occupancy levels, prices and rents have been resilient for most industrial property types, weathering the challenges of falling exports, supply chain uncertainty and a gloomy global manufacturing outlook,” comments Leonard Tay, head of research at Knight Frank Singapore.

On a y-o-y basis, industrial rents and prices were up 9.3% and 6.2% respectively. For the first nine months of the year, industrial prices and rents have risen by 4.4% and 7.1% respectively.

Industrial occupancy rates registered a slight fall of 0.2 percentage points to 88.9%, as new supply outpaced demand. “Demand for industrial space eased to 203,000 sqm (about 2.2 million sq ft) as worries over the economy led to companies putting on hold expansion plans,” remarks Lee Sze Teck, senior director of data analytics at Huttons Asia. Since the start of the year, total available stock has risen by 1.3 million sqm (about 14 million sq ft), outpacing the 0.8 million sqm (roughly 8.6 million sq ft) increase in total occupied stock.

Industrial rental growth in 3Q2023 was driven by the logistics and warehouse segment, which recorded a rental increase of 2.4% q-o-q, outpacing other segments. “The faster q-o-q pace of growth came on the back of a persistent supply crunch which drove the islandwide logistics/warehouse vacancy rate down to 8.7% in 3Q2023, its lowest level in three quarters,” observes Tan Boon Leong, JLL’s executive director, logistics and industrial, Singapore.

Rents for the multiple-user factory segment climbed 2% q-o-q, followed by rents for single-user factories (up 1.9% q-o-q) and business parks (up 1.2% q-o-q).

Source: JTC 3Q2023 Industrial Properties Quarterly Market Report

Tan highlights that this is the first time in seven quarters the pace of rental growth for multiple-user factories has eased. The segment had registered a 3% q-o-q increase in 2Q2023. The slower growth comes in tandem with a fall in multiple-user factory tenancies from 2,522 in 2Q2023 to 2,461 in 3Q2023.

The lower tenancies, coupled with high interest rates, likely contributed to slower price growth for the multiple-user factory segment in 3Q2023, says Tan. JTC’s data show that prices of multiple-user factories rose 1.1% q-o-q – its slowest quarterly growth in eight quarters. Meanwhile, prices of single-user factories rose 1.7% q-o-q.

Tricia Song, head of research for Singapore and Southeast Asia at CBRE, points out that industrial prices continue to inch upwards at a slower pace than rents in 3Q2023. “This is the fifth consecutive quarter of prices increasing at a slower rate than rents. Although yields remain relatively attractive for leasehold industrial assets, investors are probably more mindful of the high cost of financing,” she adds.

Looking ahead, Song believes that the weak manufacturing outlook will continue to weigh on the industrial real estate market, as occupier sentiment turns cautious. “With an uncertain economic backdrop and increased supply coming in 2024, as well as higher rent base, we expect future rental growth to slow, in particular for segments that are seeing higher supply,” she says. As of end-September, around 0.3 million sqm (roughly 3.2 million sq ft) of new industrial space is expected to be completed in 4Q2023, with a further 1.9 million sqm (roughly 2 million sq ft) expected to come on stream in 2024.

Huttons’ Lee concurs. ”While there are early signs of bottoming out in manufacturing and exports, companies are unlikely to expand for the moment until there is more clarity on the economy,” he says.

Knight Frank’s Tay has a more optimistic view, noting that business sentiment for the manufacturing sector remained positive based on the SingStat 3Q2023 Business Expectations Survey, while the Singapore Purchasing Manager’s Index registered an expansion in September. He adds that the manufacturing sector grew 0.2% q-o-q in 3Q2023, rebounding from the 1.5% decline the previous quarter.

All these indicators suggest that a recovery might soon be on the horizon, says Tay. “Although not out of the woods yet, there are some early signs that the outlook by the end of 2023 will be more hopeful for manufacturing than at the start of the year.”

JLL’s Tan believes industrial rents may post full-year gains of around 8% to 9%, surpassing the 6.9% growth recorded in 2022. On the other hand, he anticipates industrial price growth to moderate from 7.5% in 2022 to around 5% to 6% in 2023. “Growth will likely extend into 2024 for both rents and prices,” he adds.

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