Industry / Real Estate

Industrial Real Estate (Singapore)

Group Research / August 24, 2018

Photo Credit - AFP

Overall Outlook

We believe that the outlook for Singapore’s industrial sector will remain stable in the immediate term and will bottom out from 2018 onwards on the back of abating supply risk. Rental rates have reversed from the downtrend in 2017 to a stable rental status, where rates are expected to increase by up to 3%. The recent recovery in manufacturing sector is fuelling expectations that demand could potentially remain consistent in 2018 and bottom out in 2019, just as the total number of supply abates. However, the recovery is uneven as firms still look to consolidate or downsize their space requirements in order to remain cost efficient. Vacancy rates are expected to follow a downtrend in the future years from the 11% in 2017.

Manufacturing Sector expanded in June 2018. The Singapore Manufacturing sector in recent times is showing signs of a rebound in activity with the Singapore’s purchasing managers’ index continued to record an expansion in June 2018. However, the June purchasing manager’s index (PMI) reading marginally dropped 0. points compared to previous month to post a slower expansion at 52.5 which indicates more robust business activities going forward and the twenty second consecutive month of expansion in factory activity. The Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the PMI, said the slight drop in the latest reading was due to a slower growth in new orders and exports, factory output and slightly low inventory level.
The electronics sector also recorded a marginal decrease of 0.4 point from May to post a slower expansion reading of 51.9 – its twenty third straight month of expansion.
This was due to a slower rate of expansion in new orders, new exports, output, inventory and employment according to SPIMM.


Supply surpassing demand in 2Q18. As of second quarter 2018, take-up for industrial space was lower than the increase in supply, with a net decrease in occupied space of close to 1.9 million square feet (sqft). However, it is expected that the majority of this space will be taken up progressively by end-user occupiers in the coming quarters.

We believe that demand for space comes on the back of consolidation of operations to achieve operational efficiency, which is one of the key drivers for space in the industrial sector. Hence, we expect the increased take-up in the single-user factory space to be at the expense of higher vacancy rates emerging from existing multi-user factory space, which some of the end-users are expected to vacate. However, take-up should start to pick up in 2018 if the continued expansion in manufacturing activities is seen.


Year of consolidation in 2017; stabilization in 2018. The industrial market is at the tail end of a period of a spike in supply completions starting from 2014 and peaking in 2017. As such, landlords are typically still facing an increasingly competitive operating environment, but that should start to abate in 2018 and 2019 when competition from new supply starts to drop. That said, we view that 2018 will be a year of stabilization, given expectations that the hike in new supply in 2017 will need time to be absorbed.
Based on the latest Jurong Town Corporation (JTC) statistics, a total of 4.6 million square metres (sqm) – equivalent to 49.9 million sqft – of new industrial space is either under construction or in planning and projected to complete over the next five years, from 2018 to 2022 and beyond. Of this, more than 25% of the space will be completed and operational by the end of 2018 as at 2Q18.
Among industrial types, the single-user factory space will see close to 2.1 million sqm increase in new supply representing a c.9% increase, the multi-user factory space will see close to 1.4 million sqm of new supply (c.12% increase), followed by the warehouse space at c.8% (or close to 0.9 million sqm). The business park space will add another 0.3 million sqm (up c.15%). However, most of the space is pre-committed and thus not an issue for existing landlords.


Industrial sector’s overall vacancy rates to improve by 2018; with further decrease from 2019 onwards. Taking into account assumed pre-commitment rates and projected new demand, and faced with an increasing supply outlook, the average vacancy rate is now 11.3% (as of the 2Q2018). However, we expect an improvement to 10.5% in 2018F and a further drop in the upcoming years as supply starts tapering off.

As the influx and pace of completions are skewed over 2016-2017, on average, spot rentals faced a downside of 3% in 2017, with the exception of business park space, which had a growth of around 3% in 2017. Currently prices and rentals remain quite stable. However, we expect rentals across most sectors (Industrial, warehouse and business parks) to start turning up in 2018F onwards.

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Our In-House Expert

Derek TAN
+65 668 23716

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