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

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Industrial occupancy rates, rents and prices in Singapore continued their upward trajectory in 3Q2023 despite a contraction in the manufacturing sector. Statistics released by JTC show that all-industrial rental and price indices rose 2% and 1.4% q-o-q respectively, a trend that has been seen for the past 12 consecutive quarters since 4Q2020.

Leonard Tay, head of research at Knight Frank Singapore, comments that industrial real estate indicators have been resilient despite falling exports, supply chain uncertainty and a gloomy global manufacturing outlook. The data reveals that industrial rents and prices increased by 9.3% and 6.2% y-o-y respectively, with prices and rents rising 4.4% and 7.1% respectively for the first nine months of the year.

However, industrial occupancy rates decreased slightly to 88.9% as new supply outpaced demand. Huttons Asia’s senior director of data analytics, Lee Sze Teck, noted that demand for industrial space fell to 203,000 sqm (2.2 million sq ft) due to companies pausing expansion plans.

Since the start of the year, total available stock has risen by 1.3 million sqm (14 million sq ft) relative to the 0.8 million sqm (8.6 million sq ft) growth in total occupied stock.

Rental growth in 3Q2023 was driven by the logistics and warehouse segment, which recorded a rental increase of 2.4% q-o-q. This was followed by multiple-user factories (up 2% q-o-q), single-user factories (up 1.9% q-o-q) and business parks (up 1.2% q-o-q). Tan Boon Leong, JLL’s executive director for logistics and industrial, Singapore, highlights that this is the first time in seven quarters the pace of rental growth for multiple-user factories has eased.

Meanwhile, prices of multiple-user factories rose 1.1% q-o-q, its slowest quarterly growth in eight quarters, and prices of single-user factories increased 1.7% q-o-q. Tricia Song, head of research for Singapore and Southeast Asia at CBRE, notes that industrial prices continue to inch upwards at a slower pace than rents.

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 increased supply expected in 2024 and higher rent bases, she anticipates future rental growth to slow, “in particular for segments that are seeing higher supply.”

Lee concurs and believes companies will remain cautious about expansion until there is more clarity on the economy. Despite this, Knight Frank’s Tay points out that business sentiment for the manufacturing sector remains positive and the sector has rebounded from a 1.5% decline in 2Q2023.

JLL’s Tan anticipates industrial rents may post full-year gains of around 8% to 9%, while industrial price growth is expected to moderate from 7.5% in 2022 to around 5% to 6% in 2023.

Overall, data suggests that the outlook for manufacturing is slowly improving, though occupiers should remain cautious in the coming months. With higher supply and rent bases expected next year, industrial rents and prices may experience slower growth in 2024.