Weaker industrial sales in 1Q2023 amid dimmer manufacturing outlook: Knight Frank
By Jennifer Venkat
/ EdgeProp Singapore |
J'Forte Building (Photo: Knight Frank)
SINGAPORE (EDGEPROP) - The first quarter saw lower sales and leasing activity in the industrial and logistics property market, according to research by Knight Frank Singapore. Data compiled by the consultancy shows industrial sales totalled $799.4 million in 1Q2023 – an 11.6% q-o-q decline.
Notable deals include the sale of four properties by Cycle & Carriage to M&G Real Estate for $333 million and the sale of J’Forte Building to Boustead Industrial Fund for almost $100 million. Apart from these, about 97% of caveats lodged were for deals $10 million or lower, says Norishikin Khalik, director of occupier strategy and solutions at Knight Frank Singapore.
Source: Knight Frank
The fall in industrial investment sales comes amid a more pessimistic manufacturing outlook for Singapore this year. The Ministry of Trade and Industry is projecting Singapore’s GDP to clock between 0.5% to 2.5% in 2023, less than the 3.6% growth registered in 2022.
Other indicators also point to a less optimistic outlook, including the Economic Development Board’s quarterly business expectations survey which shows predominantly negative sentiments in the manufacturing sector for the period of January to June. In addition, Singapore’s manufacturing output decreased 8.9% y-o-y in February, with bio-medical manufacturing declining most substantially at 33.6%.
As a result, there was “slightly less demand” for factory spaces in 1Q2023, resulting in lower leasing activity in January and February, says Norishikin. For the first two months of the year, islandwide leasing volume for multiple-user factories fell by 1.5% to 1,548 tenancies, compared to the first two months of 4Q2022.
Source: Knight Frank
However, she notes that rents strengthened slightly across all industrial property types, with median rents rising 4.7% q-o-q to $2.01 psf per month. “While the electronics sector is going through a challenging period, demand remains undergirded by transport engineering and the recovering travel sector, as well as for industrial activities that support the construction sector and the development of Singapore’s sustainable energy infrastructure,” she explains.
Despite the weaker sales and leasing activity, Norishikin highlights some new innovative facilities that have come online or are in the pipeline. In April, Hyundai Motor Group started operations at their new electric vehicle production facility in Jurong – Singapore’s first vehicle assembly plant in over 40 years. Cell-based meat manufacturer Esco Aster will set up an 80,000 sq ft facility in Changi, while Commonwealth Kokubu Logistics broke ground for its 500,000 sq ft cold-chain food logistics facility at Jalan Besut. Both facilities will open in 2025.
In any case, Norishikin expects the industrial property segment outlook to remain stable, with “cautious” price and rental growth of 1% to 3% for most industrial property types in 2023. “Due to tight supply, quality logistics spaces can be expected to increase by a greater 3% to 5%,” she adds.
The segment’s longer-term growth outlook also remains positive. In 2022, Singapore recorded $22.5 billion in fixed asset investment (FAI) commitments, a 90% y-o-y surge compared to $11.8 billion in 2021. Out of the total inflow, about 77.2% was for manufacturing, with 66.8% contributed by the electronics sector.
This record volume of FAI investments last year should provide an uplift in Singapore’s industrial ecosystem, predicts Norishikin. “Notwithstanding the sombre picture in the year ahead, investments in advanced manufacturing remain robust, poised to act as catalyst for the industrial sector once the business cycle turns around.”
Furthermore, with China’s reopening of borders, Chinese manufacturers could also be looking at alternative secure locations outside their home borders, she adds. “Singapore is an attractive alternative for companies to establish production facilities and headquarter functions for the region.”
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