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Industrial property market performance the best in four years

by • January 26, 2019 • Commercial Property LoanComments (0)147

2018’s industrial property market performance the best in four years says Jll – advises cautious optimism ahead

Tay Huey Ying, Singapore’s Head of Research and Consultancy for JLL  noted that industrial property market looked to have bottomed with both rents and prices moving sideways in the 4th Quarter of 2018.

“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.”

industrial property market

Image credit: Google map

JLL said that 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.

JLL noted that 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.

The prominent real estate services company said the 2019 outlook for industrial property market looks cautiously optimistic.

Ms Tay said: “Going forward, we are cautiously optimistic on the outlook of the industrial property market in 2019.”

She added: “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.”

JLL predicted that 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.

The report said: “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.”

An earlier JLL report predicted that the industrial property prices will see a turnaround by end-2019, and that barring a worsening of the external environment or other unforeseen external shocks, it was hopeful that all industrial property indicators (rents and prices) may turnaround by end-2019 as the low pipeline supply in 2018 and 2019 will allow demand to play catch up with supply.

It added that the mending business sentiment amid the protracted strong manufacturing sector and trade performance of the past several quarters, coupled with slowing supply growth, has helped to stabilise Singapore’s industrial property market.

Mr Paul Ho, chief mortgage consultant at iCompareLoan said that “the strong occupier performance in the industrial property market was not uniform across all buildings.”

He added that “new buildings of higher specifications outperformed the older facilities, with some tenants taking advantage of the lower rents to move operations into these new facilities.”

Mr Ho believes that with the improved occupancy, some landlords will maintain rents. He expects industrial rents to ease overall and for warehouse rents to hold steady for the next few quarters.

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