Ravi Chandran
JTC’s latest quarterly market report released today said that the industrial property prices and rentals continued to stabilise in the second quarter of 2018. Although industrial prices fell 2.1 per cent from a year ago, they remain unchanged from the 1st quarter.
Industrial rents dipped to 4.1 per cent year-on-year, but the fall has stabilised with the rent falling by just 0.1 per cent quarter-to-quarter. Occupancy rates remain unchanged year-to-year, but fell 88.7 per cent, marking a 0.3 percentage points fall from the previous quarter. Transaction volume increased by 35 per cent from the first quarter, and 9 per cent year-on-year.
JTC’s report said that about 2 million sqm of industrial space, including 334,000 sqm of multiple-user factory space is estimated to come on-stream in the second half of 2018 and in 2019. This is an increase from the average annual supply and demand of around 1.7 million sqm and 1.2 million sqm respectively in the past three years.
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Commenting on JTC’s latest quarterly report JLL said industrial prices recovery is observed to be broadening.
It said in its press release:
“As new supply starts to taper in the coming years, prices and rentals should stabilise in tandem with occupancy rates…
The report card released by JTC today points towards an industrial property market that is steadily improving in health.
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For the first time since 2Q15, the decline in prices finally halt to a brake for both single-user and multi-user factories in 2Q18 (JTC does not track warehouse price trend). Additionally, the multi-user factory segment has joined the business park segment in posting rent upside in 2Q18.
This is the first quarter of rent increase for the multi-user factory segment since 2Q15, and it has come on the back of a strong pick-up in leasing transactions to a record high of 2,148 contracts in 2Q18, according to JTC’s data which starts from 1Q00. This has likely been underpinned by the more upbeat business sentiment alongside the positive economic and manufacturing data, which has emboldened more tenants and industrialists to review their real estate options.
The business park segment remained the top performer as rents strengthened for the fifth straight quarter to bring the overall rental increase over five quarters to 7.5%. This came as a consequence of steady demand, the sustained growth in office rents and generally positive business climate.
As of 2Q18, only the single-user factory and warehouse segments continue to record rent contractions.
Market likely to bottom within the next 12 months
We are optimistic that the industrial property market will likely bottom within the next 12 months, barring any unforeseen external shocks.
Despite escalating Sino-American trade frictions, Singapore’s economic outlook for 2018 has remained positive. Moreover, the tapering pipeline supply will allow demand to play catch up. JTC’s data showed that another 1.1 million sqm gross floor area of new industrial space is expected to be ready in 2H18.
Including the net addition of 0.3 million sqm net floor area in 1H18, this works out to about 1.2 to 1.3 million sqm of estimated net floor area in 2018 (assuming 80% to 90% efficiency for the 2H18 supply pipeline), significantly lower than 2017’s net new supply of 1.9 million sqm. In 2019, pipeline supply will fall further to around 0.9 million sqm gross floor area or about 0.7 to 0.8 million sqm of estimated net floor area (assuming 80% to 90% efficiency).”
Taking its cue from on an earlier JTC’s industrial property market statistics released on 26 April, JLL noted that a second consecutive quarter of modest industrial rental correction a firmer sign of industrial property market nearing bottom.
JLL said then that the market could bottom by end-2018:
“We are optimistic that the industrial property market will bottom by the end of 2018. This takes into account tapering pipeline supply that will allow demand to play catch up amid the positive economic outlook, barring any unforeseen external shocks.
JTC’s data showed that another 1.4 million sqm gross floor area of new industrial space is expected to come on-stream for the rest of 2018. This works out to about 1.1 to 1.3 million sqm of estimated net floor area (assuming 80% to 90% efficiency), significantly lower than 2017’s net new supply of 1.9 million sqm.
The business park segment is expected to continue to outperform the general market given steady demand, while logistics/warehouse rents could potentially see some upside by year-end on the back of an expected reduction in vacant stock.”
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It further noted that Business Parks will be the star performer:
“The business park segment remained the star performer, standing out as the only industrial asset class to record rent growth for the fourth consecutive quarter. As of 1Q18, business park rents have recovered by 6.9% in the last one year. This was underpinned by steady demand amid the growth of the digital economy, lack of new supply as well as the filtered-through effect from the rise in office rents.
Demand continued to stem from qualifying users from the science, technology and media industries during the quarter. For example, we understand a technology firm took up more than 50,000 sq ft at a city fringe location in 1Q18 while another technology/e-commerce company is sourcing for additional business park space (also in excess of 50,000 sq ft) due to expansion needs.”
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