Prime logistics to outperform other real estate sectors: CBRE

By Nur Hikmah Md Ali
/ EdgeProp Singapore |
The prime logistics sector is projected to see a 6% growth in rents and diversified leasing demand this year (Albert Chua/EdgeProp Singapore)
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The prime logistics sector is projected to outperform office, retail and residential sectors in 2024 and see a 6% growth in rents, according to CBRE’s Singapore Market Outlook 2024 report released on Jan 30.
In comparison, rental growth for Core CBD Grade-A office space is expected to increase 2% to 3% this year. Islandwide retail rents are expected to grow 3% to 4% over the next 12 months. Meanwhile, residential prices in Singapore could see a 3% to 4% growth, while residential rents are projected to end 2024 at 1% to 3% higher y-o-y.
The buoyant prospects for the prime logistics market this year comes on the back of dampened growth last year due to the challenging economic and geopolitical landscape. As a result, the prime logistics sector suffered from weak demand from major economies while high interest rates pushed up financing costs, says Tricia Song, head of research, Southeast Asia, at CBRE.
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Despite external headwinds, leasing activity for Singapore prime logistics assets remained resilient, with rents growing 14.2% y-o-y in 2023 to reach a record high of $1.85 psf per month. The growth is attributed to tight availability and strong leasing demand from companies in e-commerce and logistics which contributed about 31% of leasing demand in this segment.
According to Song, the year ahead could see rental growth for the prime logistics market in Singapore ease due to a higher rental baseline and price-resistance from occupiers. Moreover, industrial occupiers will emphasise operational efficiency this year and are recalibrating their real estate expansion plans by adopting a more disciplined approach towards space acquisition.
CBRE Research expects industrial end-users to start to relocate into smaller, modern high-tech industrial facilities with improved specifications. A global recovery in the semiconductor market in 2024 could also spur demand for space from Singapore-based electronics companies to support increased global sales of AI-related chips and products.
Supply crunch supporting low vacancies and high rents
The local warehouse segment added 2.2 million sq ft of new industrial space into the market last year. Noteworthy completions scheduled last year include 2PS1, a four-storey ramp-up warehouse facility in Pioneer Sector 1, and the seven-storey ramp-up building FairPrice Group Fresh Food Distribution Centre on Sunview Road.
Over the next three years, the warehouse segment is expected to inject an average annual supply of 2.19 million sq ft. This would be 47% less than the 10-year historical average of the market which has clocked an average of 4.13 million sq ft of new warehouse supply per annum.
Among the noteworthy projects scheduled for completion this year are 4 Benoi Crescent, a new five-storey facility that is set to be completed this quarter. The anchor tenant is Pokka Logistics Singapore, which has committed to a 10-year tenancy of at least 70% of the building space, with an option for extensions.
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In addition, the completion of Logos EHub at 4 Pandan Crescent in 2Q2024 will add another 837,913 sq ft of high-spec industrial space. The new facility is a seven-storey, ramp-up, e-commerce logistics hub.
However, some occupiers are showing price resistance to higher rents and are increasingly reluctant to compromise on building specifications, says Song, adding: “This has given rise to an opportunity for landlords holding older warehouse assets to undertake redevelopment to upgrade their ageing industrial properties and capitalise on the untapped demand.”
Headwinds and strategies
Sentiment among industrial occupiers will depend on the performance of manufacturing output in Singapore this year, says Song. “The economic recovery is fragile, which will affect manufacturing output,” she adds. “If the market doesn’t pick up, there will be a lot of resistance against rental growth from occupiers.”
Although interest rates are expected to decline this year, occupiers are cautious and holding back on capital investments since the timing of the rate cuts remains uncertain, according to Song.
Singapore continues to attract global manufacturers due to the city-state’s strategic location, stable regulatory environment, and easy access to a skilled workforce, and this contributes to them establishing regional headquarters here before embarking on regional expansion.
Third-party logistics companies will be in consolidation mode after expanding rapidly over the past few years, and life sciences and technology occupiers continue to actively seek new facility space here. Strong leasing demand is also expected among electronics and general manufacturing and engineering firms.
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The opening of the Hyundai Motor Group Innovation Centre Singapore last November marks a milestone as it is the first EV production plant in Singapore to harness robotics production. The South Korean car manufacturer invested $400 million to develop the 936,000 sq ft facility in Bulim Link.
Shadow spaces on the rise
Asset owners and corporate real estate leaders will be watching the office market closely this year, especially for impact on office space amid layoffs at major technology companies at the start of the year, says Song.
Last year, shadow space gradually declined due to tight supply and increasing office rental rates. Vacancies in Core CBD Grade-A offices also inched down to 3.5% as at end-2023 from 4.2% at end-2022.
According to CBRE Research, demand in the office market in 2024 is expected to diversify and rely on other sectors, such as non-non-banking financial sectors (private wealth and asset management), consumer products, legal and insurance and government agencies. The bulk of leasing activity may comprise small to medium-sized transactions.
Occupiers will focus on managing their real estate costs and are likely to renew existing leases, prioritise workplace optimisation or relocate to same-budget spaces, says Song. “Occupiers are also prioritising fully fitted and flexible office spaces as a way to reduce capex constraints in a high-cost environment,” she says.
While this year will see a relatively large injection of new office supply from projects such as IOI Central Boulevard Towers, Labrador Tower, and Paya Lebar Green, about 40% of the stock is pre-committed. Islandwide office completions will thin out from 2025 to 2027 before picking up significantly in 2028. Over the next three years, total new supply is estimated at 1.19 million sq ft per annum. This is 3.5% lower than the historical 10-year annual average new supply.
Moderate office rental growth in 2024
With flight-to-quality and green trends expected to continue, CBRE Research expects Core CBD Grade-A rents to grow at 2% to 3% in 2024, a moderate increase compared to the 1.7% y-o-y growth of Core CBD Grade-A rents in 2023.
Office sales and leasing activity may face a slower first half of the year as new office developments are gradually completed and relocations occur, says Song. Sales and leasing sentiment in the office market could pick up pace in 2H2024, bolstered by the easing of interest rates and inflationary pressures.
“As the economy picks up, companies could regain confidence to increase budgets and embark on relocations, expansionary or workplace strategies,” notes Song.

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