Industry / Real Estate

Industrial Real Estate (Singapore)

Group Research / December 04, 2019

Photo Credit - AFP

Overall Outlook

We believe that the outlook for Singapore’s industrial sector will remain stable in the immediate term and had started to bottom out from 2019 onwards on the back of abating supply risk. Rental rates have reversed from the downtrend in 2018 to a positive rental status going forward, where rates are expected to increase by 2.0% on average. Vacancy rates are expected to follow suit to tighten from the 10%-11% in 2019-2020.

Singapore’s Manufacturing sector has been showing signs of activity rebound recently with the country’s Purchasing Managers’ Index (PMI) continuing to record an expansion in Sep 2019. September reading decreased 0.4 points from the previous month to post a slower expansion at 49.5, indicating more robust business activities going forward and the 37th consecutive month of expansion in factory activity. The Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the PMI, said the increase in the latest reading was due to an increased growth in new orders, new exports, factory output, inventory and employment levels.

Further, the electronics sector recorded a decrease of 0.3 point from August 2019. However, it still continued to post a contracted reading of 49.1.

According to SPIMM, the increase in Sep 2019 is attributable to improved readings in new exports, new orders, factory output, as well as imports. However, inventories and supplier deliveries faced slower rates of expansion.


For third quarter 2019, take-up for industrial space was lower than the increase in supply, with a net decrease in occupied space of close to 0.6 million square feet (sqft). Further, the majority of this space is expected to 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. 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.


The industrial market is at the tail end of a period with a spike in supply completions starting from 2014, up until 2018. As such, landlords are typically still facing an increasingly competitive operating environment. However, supply dropped in 2018, which we can consider to be a year of stabilisation, as the hike in new supply in 2017 was absorbed to some extent. We expect a controlled increase in new supply going forward with the exception of another hike in 2020F.

Based on the latest statistics from Jurong Town Corporation (JTC), a total of 4.9 million square metres (sqm) – equivalent to 52.9 million sqft – of new industrial space is either under construction or in planning and projected to be completed over the next five years, from 2019 to 2023 and beyond. Of this, more than 7% will be completed and operational by the end of 2019.

Among industrial types, single-user factory spaces will see close to a 2.0 million sqm increase in new supply representing a c.8% rise, while multi-user factory spaces will see close to a 1.8 million sqm of new supply (c.16% increase). This is followed by warehouse spaces at c.7% (or close to 0.8 million sqm). The business park space will add another 0.4 million sqm (up c.20%). However, most of the space is pre-committed and thus not an issue for existing landlords.


Taking into account assumed pre-commitment rates and projected new demand, coupled with an increasing supply outlook, the average vacancy rate is now 10.7% (as of 3Q19). However, we expect vacancy rates to drop to 9.1% in 2019F and increase to 10.6% in 2020F. However, we can expect a more controlled vacancy rate in the upcoming years as new supply gets absorbed overtime.

As some of these new supply completions were absorbed in 2018, spot rentals faced a growth of 3% on average for business park space, whereas factory space rental remained constant, with the exception of warehouse which faced a marginal drop of 1%. However, we expect rentals across most sectors (industrial, warehouse and business parks) to start turning up from 2020F onwards as they are expected to increase on average by 2%.

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Our In-House Expert

Derek TAN
+65 668 23716

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