Ms. Tricia Song, Head of Research for Singapore, Colliers International:
Rents and occupancy
Rents and prices of the overall industrial property market remained relatively stable in Q3 2018 while overall occupancies have improved.
Industrial rents decreased marginally by 0.1% quarter-on-quarter (QOQ). This is the 14th consecutive quarter that All-Industrial rental index fell, at the same rate as Q1 and Q2 2018, signaling a continuous trend towards stabilisation. This brings the All-Industrial Rental Index to 13.7% below the peak in Q2 2014.
Overall occupancy turned around from the decline in Q2 and improved QOQ across most segments in Q3, by 0.4 percentage point (pp) QOQ to 89.1%. This is the highest All-Industrial occupancy level since Q1 2017.
In particular, rents for multiple-user factory saw the highest rate of decline among all types in Q3, by 0.2% QOQ. Occupancy also declined by 0.5 pp to 85.5% for multiple-user factory.
Rents for business park space saw a marginal decline for the first time since Q1 2017, at 0.1% QOQ. However, occupancy rate has increased by 1 pp QOQ to 86%.
Single-user factory continued to fall for the 5th consecutive quarter, albeit at a slower rate of 0.1% QOQ, compared with 1.6% QOQ in Q2 and 0.8% in Q1. Occupancy rate, however, has improved by 0.7 pp QOQ to 91.0%.
Rents for warehouses saw the best performance among all segments in Q3 and remained unchanged from Q2. Warehouses occupancy rate also increased by 0.9 pp to 89.4%, suggesting that the market has been slowly absorbing the large amount of supply that came on-stream in 2017 and first half of 2018.
Industrial price index saw marginal improvements (+0.1% QOQ) in both multiple user factory and single-user factory segments. This is the first increase for the overall index for the first time after 13 consecutive quarters, possibly due to better market sentiment and rising demand from investors.
Future supply is set to ease from the record supply of 20.9 million sqft (net lettable area) completed in 2017. The industrial stock completions in 9M 2018 were relatively low at 4.8 million sqft (net lettable area). JTC expects another 5.6 million sq ft (gross lettable area) of industrial space, including 3.6 million sq ft of single-user factory space, to be completed in the last quarter of 2018. Assuming 80-90% efficiency, the new supply would roughly work out to be 4.5-5.0 million sq ft of net floor area, bringing total completed industrial space in 2018 to around 10 million sqft (net), a drop of c.52% from 2017. New supply will increase in 2019 to 13.8 million sq ft (gross) of industrial space across all types before easing from 2020 onwards.
Singapore’s GDP (advanced estimates from Ministry of Trade and Industry) grew 2.6% YOY in Q3 2018, slower than the 4.1% in Q2. For the first three quarters of 2018, the Singapore economy clocked growth of 3.8% - the best 9-month performance since 2013. The manufacturing sector was still the main growth driver in Q3, though its momentum has slowed to 4.5% YOY, from over 10% YOY in the previous two quarters and 2017, on base effects, a fading electronics cycle, and trade war concerns.
Mr. Dominic Peters, Senior Director, Industrial Services, Colliers International:
Dyson’s recent announcement that it will be making electric cars in Singapore represents a trophy win for Singapore’s aspirations to move up the value chain for the manufacturing sector. We expect spillover effects to other parts of the value chain in the industrial property sector.
Data Centres have also been a bright spot, with more data centres in the pipeline.
We are cautiously optimistic on the industrial property sector, pending the severity of the trade war.
2019’s new industrial supply looks to remain similar to 2018’s. Going forward, we expect the industrial market to be two-tiered – with rents for the high-specs and business park space inching up while the older space could still decline slightly to flattening out.