Industry / Real Estate

Industrial Real Estate (Singapore)

Group Research / October 24, 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 2018 on the back of abating supply risk. Rental rates have reversed from the downtrend in 2018 to a positive rental status, where rates are expected to increase by up to 2.0-3.0% going forward. Vacancy rates are expected to follow suit, tightening from 11% in 2018 and remain around this level.

Manufacturing Sector expanded in June 2019. Singapore’s Manufacturing sector has been showing signs of activity rebound with the country’s Purchasing Managers’ Index (PMI) continuing to record an expansion in June 2019. June reading decreased 0.3 points from the previous month to post a slower expansion at 49.6, indicating more robust business activities going forward and the 34th 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 0.2 point from May 2019. However, it still continued to post a contracted reading of 49.2 – its eighth straight month of contraction.

According to SPIMM, the increase in March 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.


Demand below supply in 2Q19. For second quarter 2019, take-up for industrial space was lower than the increase in supply, with a net decrease in occupied space of close to 0.2 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.


Controlled pick in Supply in 2019. The industrial market is at the tail end of a period with a spike in supply completions starting from 2014, up until 2017. 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 4.8 million square metres (sqm) – equivalent to 51.2 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 20% 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 1.7 million sqm of new supply (c.15% increase). This is followed by warehouse spaces at c.6% (or close to 0.6 million sqm). The business park space will add another 0.4 million sqm (up c.17%). However, most of the space is pre-committed and thus not an issue for existing landlords.


Industrial sector’s overall vacancy rates to increase going forward. 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 2Q19). However, we expect vacancy rates to drop to 10.3% in 2019F and increase to 11.4% in 2020F. However, we can expect a more controlled vacancy rate in the upcoming years as new supply gets absorbed.

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 2019F onwards.

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Our In-House Expert

Derek TAN
+65 668 23716

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12 Marina Boulevard, Marina Bay Financial Centre Tower 3
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