Industrial rents climb 1.5% in 1Q2023, new supply erodes occupancy to 88%

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In 1Q2023, the overall occupancy rate for the industrial property market fell to 88.8%, according to the latest quarterly market report by JTC. This is a fall of 0.6 percentage points compared to the previous quarter and a decline of 1.0 percentage points compared to the same period a year ago. The drop in overall occupancy is due to new project completions in 1Q2023 as new industrial supply continues to exceed demand, says JTC.

Around 10.76 million sq ft of new industrial space is expected to be completed for the whole of 2023. Of the upcoming supply, single-user factory space makes up about 62%, warehouse space makes up 21%, while the remaining 17% comprises multiple-user factory and business park space.

At the end of 1Q2023, total available industrial real estate stock increased to around 3.84 million sq ft, while total occupied stock increased by 53,820 sq ft q-o-q.

In spite of the fall in occupancy, prices and rentals have stayed on the rise in the face of inflationary pressures. Overall price of industrial space went up by 1.5% q-o-q and 6.9% y-o-y, while industrial rents grew 2.8% q-o-q and 8.8% y-o-y.

The rise in industrial prices and rents in 1Q2023 are mainly due to new and unique manufacturing activities that have recently taken off or are in the pipeline, says Leonard Tay, head of research at Knight Frank Singapore. Hyundai Motor Group’s Innovation Centre that started operation in the vicinity of Jurong, for example, marks the birth of Singapore’s first vehicle assembly plant this April.

Warehouse rents posted a noteworthy growth of 2.9% in 1Q2023, a development primarily attributed to the acute supply constraints in this sector. Islandwide warehouse vacancy has dwelled below 10% for the eighth consecutive quarter.

Multiple-user and single-user factories each rose by 3.0% q-o-q. With the surge of supply for high-specification factory space, and a cooling of demand from the weakened manufacturing output, rental growth is expected to taper in the future, says Catherine He, head of research, at Colliers.

On the other hand, He of Colliers highlights how business park rents saw a rise of 0.6% q-o-q in 1Q2023, with newly constructed assets on the city-fringe particularly performing well.

However, Brenda Ong, executive director for logistics & industrial at Cushman & Wakefield, anticipates a slow in rental growth of around 1.0% for conventional factories owing to the softening of the manufacturing sector and lackluster export data.

Tricia Song, head of research, Southeast Asia at CBRE, believes the shortage of choice spaces will continue to drive rental increases across the board, especially for prime logistics space. Nevertheless, to remain relevant, landlords of older development may consider launching asset enhancement initiatives and redevelopment works, or even providing incentives to retain tenants, she adds.