Ms. Tricia Song, Head of Research for Singapore, Colliers International:
Rents and prices of the overall industrial property market showed signs of stabilisation in the last quarter of 2018 while overall occupancies have improved, albeit at a slower rate than in the previous quarter.
Rents and occupancy
After 14 consecutive quarters of decline, the All-Industrial rental index has finally stabilised, remaining unchanged from the previous quarter. This suggests that the market seems to have reached the bottom. This brings the All-Industrial rental index to 13.7% below the peak in Q2 2014.
Overall occupancy continued the upturn from Q3 and improved by 0.2 percentage point (pp) QOQ to 89.3%. This is the highest All-Industrial occupancy level since Q1 2017.
In particular, rents for business park space saw a continuous marginal decline from the previous quarter, at 0.1% QOQ. Business park occupancy also declined by 1.1 pp QOQ to 84.9%, possibly due to the large amount of new supply from two completions during the quarter – Alice@Mediapolis in one-north and FM Global Centre in Science Park II – which totaled 51,100 sq m.
Rents for multiple-user factory also continued to dip, falling by of 0.1% QOQ - led by the Central planning region while other regions saw rental improvements. Overall occupancy rate for multiple-user factory increased by 1 pp QOQ to 86.5 for multiple-user factory.
Similarly, warehouse rents fell marginally by 0.1% QOQ. However, occupancy rate increased by 0.1 QOQ pp to 89.5% as the market continued to absorb the abundant supply that entered the market in 2017 and 2018.
Rents for single-user factory saw the best performance among all segments in Q4, rising by 0.6% QOQ. Single-user factory occupancy rate, however, declined by 0.1 pp QOQ to 89.5% as an influx of new supply, mainly located in the West region, came on-stream during the quarter.
Industrial price index stabilised and remained unchanged from the previous quarter, with price index for single-user factory segment seeing an uptick of 0.3% QOQ, indicating rising demand from investors for this segment which also includes data centres.
The total industrial stock completion in full-year 2018 was relatively low at 5.8 million sq ft (net lettable area), including 2.7 million sq ft (net) of warehouses space. The total industrial stock completion of 5.8 million sq ft is a 72% fall from the record supply of 20.9 million sq ft (net) of industrial space across all types completed in 2017.
JTC forecasts new supply in 2019 to increase to 16.2 million sq ft (gross), with 64% in single-user factory. Assuming an efficiency rate of 80-90%, around 13-14 million sq ft (net) of industrial space across all types are expected to come on-stream in 2019. Some projects previously expected to be delivered in late 2018 have been pushed back into the next year, further increasing the supply pipeline for 2019. Supply is set to ease from 2020 onwards, supporting rental recovery especially for the warehouse segment, before picking up again in 2022.
According to advanced estimates from Ministry of Trade and Industry (MTI), Singapore’s GDP edged down slightly to 2.2% YOY in Q4 2018 from 2.3% in Q3. The manufacturing sector remained a key growth driver during the quarter, rising to 5.5% YOY from 3.7% in Q3, mainly due to expansions in biomedical manufacturing and electronics. For the whole year of 2018, Singapore’s GDP grew by 3.3%.
Mr. Dominic Peters, Senior Director of Industrial Services, Colliers International:
We think the industrial rents in general have bottomed, but recovery would likely be two-tiered with high-specs and business park space to fare better due to the spillover effect from a sharp office rent recovery in 2018 and further office rental upside in 2019.
With more than 80% of the total upcoming supply being factory space, rents in this category would likely remain pressured.
While we expect demand for logistics properties to improve in 2019, with e-commerce as one of the key drivers, the market continues to struggle with absorbing the large amount of supply completed in 2017-2018. While warehouse vacancy has improved, it has remained elevated at 10.5% as of end-December. New logistics supply will remain robust in the near-term, with 2.1 million sq ft (equivalent to 1.8% of current stock) expected to complete in 2019. We expect logistics rents could remain weak in the first half of 2019 before recovering 1-2% towards end of 2019.
Following the completion of two data centres in Q4 2018, we expect more major data centre projects in the pipeline to arrive in the coming years such as the ones built by Google, ST Telemedia Global, Equinix and Facebook.