Prices, rentals of industrial space to remain under pressure this year

Segments of the market may be more resilient; for example, warehouses, from e-commerce and stockpiling

Fri, Jul 24, 2020

Nisha Ramchandani


PRICES and rents of industrial space are expected to remain under pressure this year, as economic headwinds prevail, although certain segments of the market may prove more resilient.

In the second quarter, prices declined by 1.7 per cent year on year and 1.1 per cent quarter on quarter, weighed down by the multi-user factory segment, the latest market report from JTC Corp showed.

Rents came down 0.8 per cent year on year and by 0.7 per cent quarter on quarter in the biggest quarterly drop since Q3 2017.

While the quarter-on-quarter decrease in rents was broad-based, rents for single-user factories slid the most at one per cent, followed by warehouses at 0.7 per cent.

Prices and rents are at their lowest since Q1 2012 and Q2 2012 respectively, said Cushman & Wakefield.

Highlighting that the Q2 data might not have fully captured the economic impact of the Covid-19 pandemic, JTC said: "Some transactions were pre-committed before the 'circuit-breaker' measures, and there was a relative lack of recent market transactions."

Occupancy rates bucked the downward trend by edging up 0.1 percentage point year on year, and by 0.2 percentage point quarter on quarter to 89.4 per cent, led by single-user factory and warehouse space. This stemmed from pre-commitments as well as stockpiling and storage.

However, occupancy rates for multiple-user factories and business park space fell.

For warehouse space, occupancy went up by 0.8 percentage point to 88.3 per cent.

Desmond Sim, head of research (Southeast Asia) for CBRE, noted: "Increases in occupancy were observed mainly in the east, north-east and west regions, where prime logistics buildings with higher specifications are located."

The industrial property market has proven more resilient during the ongoing pandemic than other property sectors such as retail, office, hotel and residential, noted Tricia Song, head of research (Singapore) for Colliers International.

The warehouse segment, for instance, has been buttressed by growing prevalence of e-commerce and the stockpiling of essential goods by the government.

She added: "Overall, we are cautious about Singapore industrial market's outlook in 2020, and forecast the general industrial market to remain weak in 2020."

Ms Song suggested that the business park and high-specs segments could weather the downturn better, thanks to the technology sector, and that warehouses could be supported by the growth in e-commerce, which is fuelling demand for logistics services.

Head of research for Knight Frank Singapore, Leonard Tay, expects that rents and prices could fall by about five per cent this year. Even as production in the manufacturing sector gradually picks up over the next 12 to 18 months with the reboot of activity both locally and globally, upcoming industrial supply as well as the economic recession will mean a slow road to recovery.

"Industrial space users will be tentative in expanding their physical space requirements until such time when recovery is more certain," he added.

Similarly, JLL's head of research and consultancy, Tay Huey Ying, expects that most businesses will continue to be cautious in the coming quarters, given the ongoing macroeconomic headwinds, although she sees demand for warehouse space being supported by stockpiling needs as the risk of further lockdowns remains.

She added: "That said, occupiers are likely to stay rent sensitive amid the deep economic recession. We thus expect both rents and prices to continue to trend down across all industrial property types in the next six months."

As at end June, around 1.3 million square metres (sq m) of new industrial space were expected to be completed in the second half of this year. Only 0.2 million sq m of new industrial space was completed in the second quarter, suggesting that new industrial space will not meet the earlier projection of 2.1 million sq m for 2020.

This comes as the circuit breaker halted most construction activities. Another 1.5 million sq m worth of space is expected to come onstream in 2021.

JTC also expects further delays in completion for some industrial building projects, as project owners and contractors have to meet the Building and Construction Authority's "Safe Restart" requirements.

Mr Sim said: "While CBRE Research expects factory rents to be less resilient amid the unfavourable economic conditions, heightened demand for prime logistics spaces, as well as the limited upcoming supply, compounded by delays in project constructions, could help to lend some support to overall warehouse rents."

Market activities and transaction volumes slumped in Q2 2020 due to the circuit breaker, with just 130 units changing hands - a quarterly low not seen since Q1 1991, pointed out Cushman & Wakefield.

The real estate consultancy expects volumes to remain depressed, given the economic malaise, although "keen-eyed investors will be waiting on the sidelines, looking to pick up opportunistic deals that may emerge", it added.