More flexible use of space in the offing

By Bong Xin Ying / EdgeProp Singapore | January 4, 2019 12:00 PM SGT
The Dyson campus in the UK. The company will open its first electric vehicle factory in Singapore in 2020. (Credit: Bloomberg)
Dyson, the British firm famous for its bladeless fans and bagless vacuum cleaners, announced in October that it would be building its first electrical vehicle factory in Singapore. Construction is scheduled to start in December and to be completed in 2020. The new electric vehicles are expected to roll off the assembly lines in early 2021.
The production manufacturing facility will build on Dyson’s existing advanced motor and battery expertise in Singapore and draw on the nation’s expertise in R&D, advanced manufacturing, automation and access to supply chains, says the company.
“Singapore continues to attract higher-value-added manufacturing companies, such as Dyson, to set up manufacturing facilities,” says Brenda Ong, executive director of industrial and logistics at CBRE. “Given the skilled labour and strong government support, more of these advanced manufacturing companies are focusing on production of parts for robotics, Internet of Things and autonomous vehicles here.”

Strong demand for warehouse, high-value-add space

In July last year, e-retail giant launched Prime Now to households in Singapore, offering same-day delivery service. To meet that promise, Amazon opened a 100,000 sq ft Prime Now warehouse near Jurong.
With the rise in e-commerce and expectations of faster delivery time, there is a strong focus on shortening last-mile delivery time, observes CBRE’s Ong. “At the same time, there is an increasing need to consolidate at a retail and warehouse level to ensure that costs are kept competitive for retailers and consumers.
Interest in the logistics sector of the industrial space is expected to remain strong, especially as the government places a strong focus on scaling up the urban logistics in Singapore, says Ong. “Confidence in the warehouse sector is evident; more third-party logistics providers [3PLs] are expanding here.” Notable 3PL warehouses in the pipeline include Bollore Logistics’ warehouse on Sunview Way (0.54 million sq ft); Schenker Singapore’s warehouse on Alps Avenue (0.55 million sq ft); and Yusen Logistics’ warehouse on Tuas Avenue 13 (0.22 million sq ft).
Sectors that continue to drive leasing demand were those in the high-value-added industries, such as precision engineering and electronics, with specific requirements such as clean rooms, says Ong.
Based on JTC statistics, industrial leasing volume from January to October surpassed the annual leasing tally in 2017 by 8.6% y-o-y to $55.04 million, according to CBRE. Occupancy rates were shored up, especially in buildings with higher specifications, and there was also a stronger take-up in recently completed warehouses. As a result, net absorption surpassed net supply in 3Q2018, which led to a 0.4 percentage point increase in the overall occupancy rate to 89.3%.
Stronger leasing performance in higher-specification industrial properties is expected to keep rents and capital values stable over the next 12 months, says Ong. “However, this is also fairly dependent on how companies intend to adjust their business strategies based on the ongoing [US-China] trade war.”

Slow demand for multiple-user factory space

The multiple-user factory space segment saw negative absorption of 0.37 million sq ft over the same period from January to October. CBRE attributes this mainly to the Central region, where negative net absorption was about 0.96 million sq ft. Coupled with the total net supply of 0.28 million sq ft in 3Q2018, vacancy rates rose slightly by 50 basis points to 14.5%.
“Overall demand for strata-titled industrial properties continued to remain slow, especially as buyers’ choices depend on the remaining land lease tenure and location,” says CBRE’s Ong. Overall strata deal count rose 0.6% y-o-y to 828 units in 2018. At the same time, overall caveat sales volume exceeded 2017 sales volume by 6.9% at $898.12 million. According to caveats lodged with URA, 58% of the transacted units had remaining lease tenures of 30 to 59 years. Strata-titled developments in the Central region achieved the highest sales volume, accounting for 37% of total units, notes CBRE.
In the absence of sites with long tenures from the Industrial Government Land Sales programme, developers are venturing into the private market for such industrial sites. Examples include Oxley-SLB Development’s joint purchase of Pei Fu Industrial Building for $76.25 million in April 2018; and Zhao Zhi Chao’s purchase of Citimac Industrial Complex for $430.1 million in July 2017. Both properties have freehold tenures.

Tapering supply

Total completed industrial space in 2018 was about 10 million sq ft, says Tricia Song, head of research for Singapore at Colliers International. This is about half the 20.9 million sq ft built in 2017. Song expects new supply to increase to 13.8 million next year, across all industrial segments, before easing from 2020. She sees future supply of industrial space remaining “significantly below” the 16 million to 21 million sq ft completed between 2013 and 2017. “This should bring some relief to industrial landlords,” adds Song.
While rents for high-specification space are expected to inch up, Colliers expects those of older industrial spaces to decline slightly or flatten out.
At the same time as industrialists are buying for their own use, real estate investment trusts (REITs) and property funds continue to be the main source of demand for industrial property. Colliers noticed growing institutional interest in acquiring industrial spaces, especially in niche sectors such as data centres, hi-spec facilities and modern ramp-up logistics buildings in 1H2018.
Data centres are increasingly sought after by some investors, property funds and REITs, says Nicholas Mak, ZACD Group executive director of research. “Data centres cater to the growing data needs of the expanding population of mobile phones and mobile devices. But they also require large investments and specialised operators to maintain such centres.”

Business parks

In the business park segment, demand was driven by qualifying users from the science, technology and media industries. Agribusiness group Wilmar International is developing a new facility in Biopolis, one-north. The facility will be built by Boustead Projects.
More recently, within the Biopolis cluster of one-north, US-based Eli Lilly and its subsidiary Lilly Centre for Clinical Pharmacology (LCCP) opened a 40,600 sq ft research facility in Synapse in November. China-based insurance group, Ping An, officially opened OneConnect Financial Technology (Singapore) last month. It spans 15,000 sq ft at Mapletree Business City II.
“Business park demand will be sustained by cost-conscious companies that do not need to be in the CBD and are looking to relocate in business parks to achieve cost savings,” says Christine Li, head of research for Singapore at Cushman and Wakefield (C&W). This will underpin the demand for business parks, particularly in the city fringe, as they are more highly sought after by MNCs, she adds.

Blurring of lines

There is an increasing demand for more flexible use of industrial space arising from the blurring of lines between manufacturing and services, observes Tay Huey Ying, head of research at JLL Singapore.
In Woodlands, JTC is test-bedding a multi-tenanted building on a site zoned Business 1-White to support manufacturing companies in co-locating their service-driven activities such as R&D and after-sales support, alongside their manufacturing operations. JTC will allow a wider range of uses in the Business 1 component, including industrial-related uses that are closely linked to or provide critical support for the industrial sector.
“If successful, the industrial landscape could see the introduction of more of such flexible facilities to cater to the evolving needs of industrialists,” says Tay. “Developers and industrial property owners could also explore ways to future-proof their facilities, such as incorporating flexibility into the building’s design for future modification without having to tear down and rebuild.”
The industrial property market reached a point of “stabilisation” in 2H2018, notes CBRE’s Ong. “Most of the supply pressure has been alleviated”. Most of the projects in the pipeline over 2019 to 2021 are targeted at single-users, and upcoming major multiple-user developments are JTC facilities, she adds. “On the back of a moderating pipeline supply, the pickup in leasing demand for buildings with higher specifications has helped support occupancy levels.”