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Colliers commentary on JTC's announcement on Q3 2022 statistics

Notwithstanding a drop in overall occupancy from 90% in Q2 2022 to 89.7% in Q3 2022, both the JTC all Industrial price and rental indices continued to experience growth in the third quarter. The rental index rose by 2.1% quarter-on-quarter (QoQ), or 4.9% year-on-year (YoY) in Q3 2022, accelerating from its 1.5% QoQ growth and 3.4% YoY growth in the previous quarter. This would be the fastest YoY rental growth since Q2 2014. Similarly, the price index rose by 2% QoQ, or 7.2% YoY, accelerating from the 1.5% QoQ and 5.2% YoY growth last quarter. This would make it the fastest YoY price growth since Q2 2013. 

Among the various market segments, warehouses registered the highest annual rental increase of 6% YoY, despite a slight softening in occupancy from 90.9% in the previous quarter to 90.8%. 

Although warehouse rents, on the overall, increased by 1.9% QoQ, the rate of rental growth has moderated (from 2.1% in the previous quarter) due to more supply coming onstream. Colliers has observed that rental performance would vary across different warehouses, depending on their location and specifications. Specifically, there has been a rise in investor-grade ramp-up warehouses, as the delivery of new supply has yet to keep pace with demand.  Leasing demand for warehouse space may taper in the coming quarters with a weaker manufacturing outlook, and as consumer demand shifts to services from goods post-pandemic, leading to reduced requirement for manufacturers to stockpile. 
The rental indices for both multiple-user and single-user factory have increased respectively at 2.4% QoQ and 2% QoQ, picking up pace from last quarter’s growth of 2.1% and 0.4% QoQ, respectively. The strong growth for multiple-user factory rents could be attributed to the growing demand for high-specification multi-user factories, as occupiers look for office grade industrial spaces near the city fringe. 

Demand for factories have also been supported by continued growth in the biomedical, and high value manufacturing industries as more firms are encouraged to set up their manufacturing hubs in Singapore due to its political neutrality, efficient infrastructure, and government support. 

Business Parks
Business parks rents have started to exhibit some sustained growth, on the back of tight supply in the city fringe areas. Most tenants prefer the newer, higher specification developments in the city fringe. Colliers has observed that enquiries for business park space in the rest of island have been slow. In addition, high vacancy rates and a higher supply pipeline could continue to suppress rents.

Going forward, it is expected that rental growth will continue across all sectors with the increase in service charges, as asset owners pass on higher operating costs to tenants. The increase could range from around 5% for warehouse and factories to 10% for business parks. 

The decline in overall occupancy of 0.3% during the quarter was driven mainly by a fall in occupancy of single-user factories where occupancy fell by 0.4% compared to the previous quarter. There were also slight declines seen for the occupancy rates of multi-user factory and warehouse segments, but this can be attributed to supply catching up with demand, with the delays in construction during the pandemic. 

With an average annual supply of about 1.2 mil sq m coming on stream from now till 2025 (double the average annual supply 0.6 mil sq m over the past three years), supply is likely to outstrip demand and could dampen the pace of rental and price growth. The warehouse segment might be an exception to this trend, as there appears to be a dearth of supply post 2024, and where pre-commitment to existing pipeline supply is high. 

On a macro level, this September’s economic indicators are collectively pointing to a manufacturing slowdown; manufacturing output was less than expected at 0.9 % YoY, as electronic production saw a contraction for the third consecutive month. Non-oil domestic exports (NODX) grew just 3.1% YoY, easing from an expansion of 11.4 % in the previous month. Additionally, the overall Purchasing Managers’ Index (PMI) posted a contraction of 49.9, after 26 consecutive months of expansion with a contraction of 49.4 in the electronics sector, signaling weaker manufacturing sentiments. This was largely driven by a slowdown in electronics shipments with global demand for chips and electronics falling as rising inflation and rising borrowing costs weigh on consumer demand. As such, manufacturers might also become more cautious in their expansion plans.

Manufacturing output is likely to weaken on the back of an electronics downturn and weaker growth in non-electronics. Overall, a weakening global growth outlook and recession concerns are likely to weigh down on industrial sentiments. Nevertheless, demand for industrial space, especially high specification warehouses and city fringe business parks will still be underpinned by growth industries such as the food, logistics, precision engineering and biomedical sectors, which in turn will support rental and price growth, albeit at a more measured pace. 

Consequently, Colliers expects rents to grow by between 6% and 7% for this year. On the other hand, industrial prices could grow at a higher clip between 8% and 9%, on the back of growing interest in industrial assets due to their higher yields and limited availability. With the higher cost of capital, the market could see more sales and leaseback activities, as asset owners look to lighten their balance sheets. 



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