Warehouse rents up 1.7% in 3Q2021 – highest quarterly growth in eight years
By Cecilia Chow
/ EdgeProp Singapore |
The increase in the all-industrial price index for the first nine months of 2021 was 2.9%, while the rental index rang in at 1.8% (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - The JTC all-industrial price index increased by 0.1% q-o-q and the rental index nudged upwards by 0.7% q-o-q in 3Q2021. “This marks four consecutive quarters of marginal, albeit positive growth,” says Leonard Tay, head of research, Knight Frank Singapore.
The increase in the all-industrial price index for the first nine months of 2021 was 2.9%, while the rental index rang in at 1.8%. The manufacturing sector remained on a growth path supported by output in all clusters, with the exception of the chemicals cluster, notes Tay.
Business park space was driven by the rising demand for R&D operations. In 3Q2021, Grab opened its new headquarters at 1 and 3 Media Close at one-north. However, the increase in demand for business park space was offset by new supply in 3Q2021, with occupancies down 0.5 percentage points (ppt) to 84.3%, says Lam Chern Woon, Edmund Tie head of research & consulting.
Warehouses had the highest quarterly rental increase of 1.7%, since the previous peak in 4Q2013, notes Tricia Song, CBRE head of research for South East Asia. It was on the back of improving occupancies and strong leasing activity, with vacancy rate below 10% since 2016. Occupancy rate for warehouses rose 0.4% q-o-q to 90.1% in 3Q2021, according to CBRE. “Prime logistics space has been extremely tight and demand for storage space has benefitted second-tier warehouses,” she adds.
“This comes as no surprise as warehouse demand has been boosted by the ongoing movement towards stockpiling, e-commerce and online grocery shopping,” notes Edmund Tie’s Lam.
Warehouses had the highest quarterly rental increase of 1.7%, since the previous peak in 4Q2013 (Credit: Shopee)
The laggard in the industrial sector for the past two quarters was the single-user factory segment, but it performed well in 3Q2021, with rents rising 0.6% q-o-q, according to Shirley Wong, director of research for Colliers International Singapore.
New supply almost halved from a high of 1.26 million sq ft in 2Q2021 to 678,000 sq ft in 3Q2021. Nonetheless, supply exceeded net demand of 258,000 sq ft the past quarter. Occupancy declined by 0.2% percentage points to 90.7%.
Rents in the multi-user factory segment increased another 0.3% q-o-q in 3Q2021 after rising 1% the previous quarter, adds Wong. Net supply rose to 1.1 million sq ft, in tandem with net demand, resulting in occupancy edging up by 0.1 ppt to 89.8%.
Although factory supply is expected to remain abundant, “any further delays in new completions could provide some relief and potential upside for our forecast of 1.0% rental growth in 2021,” notes Wong.
Net new demand for industrial space was 2.4 million sq ft, roughly matching net new supply for the quarter, observes Knight Frank’s Tay. Overall industrial occupancy rate was unchanged from the previous quarter at 90.1%. Some 9.4 million sq ft of industrial space is expected to be completed by end of 4Q2021, with single-user factory space accounting for 45% of the total and multiple-user factory space making up 39%.
Business park space was driven by the rising demand for R&D operations (Photo: Samuel Isaac Chua/EdgeProp Singapore)
The impending supply will keep factory price and rental growth in check for the rest of 2021, says Tay. However, there are reasons for optimism: “Singapore continues to draw manufacturing investment as a major location for chip manufacturers,” he points out. For example, German multinational Siltronic recently broke ground on a new $3 billion wafer manufacturing facility at JTC’s Tampines Wafer Fab Park.
Domestic food and agri-tech industries has been another growth sector as the government aims to produce 30% of Singapore’s nutritional needs domestically by 2030. Top Japanese egg producer ISE Food Holdings signed a memorandum of understanding (MOU) with the Singapore Food Agency in September. It intends to invest $100 million to build Singapore’s fourth egg farm, with facilities to open progressively from 2024.
Singaporean contract development and manufacturing firm Esco Aster, started production of cell-cultured chicken at their Ayer Rajah Crescent facility in July. Meanwhile, Chinese biotech firm Avant announced the development of a pilot production facility for cultivated fish cells in September.
Activity in the manufacturing sector chalked up double digit, y-o-y growth for four consecutive quarters from 3Q2020 (exiting the circuit breaker) to 2Q2021 before moderating to 7.5% in 3Q2021 (advance estimates from MTI). Knight Frank’s Tay expects activity to ease in the next 12 months due to the economic slowdown in China and global supply chain disruptions.
“Nonetheless, sustained demand for pandemic-era goods, such as bio-technology components, healthcare and sanitary goods, as well as electronics components for the pandemic-induced digital transformation, will continue to draw high-value-added manufacturing investment to Singapore,” argues Tay.
Based on the current trajectory, Knight Frank’s forecast is for industrial prices and rents to rise by 2% to 4% for the whole of 2021.
Next year’s supply pipeline of 21.1 million sq ft is a jump from the five-year (2016-2020) historical average of 11.8 million sq ft. However, two-thirds are single-user factories and warehouses, CBRE’s Song points out. “Pre-commitments for upcoming warehouse developments have been strong,” she says. “This is testament of strong demand from occupiers, which has grown along with the economic recovery.”
Overall rental growth could be capped at 5% in 2022 on the back of the anticipated jump in new supply, reckons Tay Huey Ying, JLL head of research and consultancy.
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