2018’s industrial property market performance the best in four years, cautious optimism ahead

Tay Huey Ying, Head of Research and Consultancy, Singapore 郑惠匀, 研究与咨询部主管 (新加坡)

January 25, 2019

Industrial property market looked to have bottomed with both rents and prices moving sideways in 4Q18

Singapore’s industrial property market appeared to have finally hit bottom, going by JTC’s latest statistics released for 4Q18 today.

For the first time, both the all-industrial property rental index and the all-industrial property price index (which tracks price movements of single-user and multi-user factories) held steady in 4Q18. This ended 14 successive quarters of rental decline and extended the stability in price for the fourth straight quarter.

At the same time, the islandwide occupancy improved for the second consecutive quarter to a seven-quarter high of 89.3% in 4Q18, as the slowdown in new completions allowed net absorption to outpace net new supply for the second consecutive quarter.

Overall, 2018’s industrial property market annual performance was the best in four years as the all-industrial property price index ended 2018 on a stable footing, after falling for the preceding three years. Likewise, the all-industrial property rental index recorded only a marginal 0.3% y-o-y drop after tumbling for four straight years, on the back of a pick-up in leasing activities. According to rental records from J-Space, the 10,473 leasing transactions in 2018 was up 14.6% y-o-y, and the highest annual leasing volume captured since the start of the series in 2000. This supported the rise in the islandwide occupancy rate from 88.9% as of end-2017 to 89.3% as of end-2018.

2019 outlook cautiously optimistic

Going forward, we are cautiously optimistic on the outlook of the industrial property market in 2019.

Although JTC’s 4Q18 data showed that 2019’s supply will rise from the net addition of around 543,000 sqm seen in 2018, more than three-fifths of 2019’s pipeline supply is expected to be from single-user factory developments meant predominantly for owner-occupier purposes. New supply of business park and warehouse space in 2019 are also expected to be lower than their respective net additions in 2018.

Occupier demand, on the other hand, should remain firm amid continued economic growth although macroeconomic risks such as the global trade war and slowing manufacturing sector growth in 2019 could weigh on business sentiments.

Notwithstanding, industrial developments with higher building specifications catering to the needs of new economy firms (e.g. technology companies) and firms from higher value-added industries are expected to outperform the broader market. Against this backdrop, and barring a worsening of the external environment or other unforeseen external shocks, we expect rents for business parks space to continue to strengthen in 2019, possibly by up to 5%, while rents for warehouse/logistics premises could see some marginal upside by end-2019 as demand catches up with supply.

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