Industry / Real Estate

Industrial Real Estate (Singapore)

Group Research / November 02, 2017

Photo Credit - AFP

Overall Outlook

We believe the outlook for Singapore’s industrial sector will remain soft in the immediate term and will only start to bottom out from end-2017 on the back of abating supply risk. Rental rates are expected to soften by up to 5% in 2017 and bottom out in 2018 The manufacturing sector’s recent recovery is fuelling expectations that demand could pick up in 2018, just as supply abates. However, the recovery is uneven as firms are still looking to consolidate or downsize their space requirements to remain cost efficient. Vacancy rates are expected to rise to 11% and bottom out only from 2019. 

Manufacturing sector has been expanding. Singapore’s manufacturing sector is showing signs of a rebound in activity as the purchasing managers’ index (PMI) continued to record an expansion. The September reading stood at 52.0, indicating more robust business activities going forward. The Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the PMI, said the latest reading was driven by a faster rate of expansion across all key indicators. New orders, export demand, and output were all up.
The electronics sector gained 0.4 point from August to post a reading of 53.6 – its 14th straight month of expansion and the highest level since July 2010. This was thanks to a faster rate of expansion across key indicators of the sector, although employment recorded a slower rate of growth, said the SPIMM.


Net surplus of space. As of 3Q17, take-up for industrial space still lagged the rise in supply, with a net increase in unoccupied space of close to 1.1m square feet (sqft). It is expected that most of this space will be taken up progressively by end-user occupiers in the coming quarters.

We believe that demand for industrial space comes on the back of consolidation of operations to achieve higher 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 take-up rate should start to rise in 2018 if the expansion in manufacturing activities continues.


Year of consolidation in 2017; stabilisation in 2018. The industrial market is at the tail end of a spike in supply completions starting from 2014 and peaking in 2017. As such, landlords still face a competitive operating environment, but that should abate in 2018 when competition from new supply eases. We believe 2018 will be a year of stabilization on expectations that the rise in new supply that came onstream in 2017 will need time to be absorbed.

Based on the latest JTC Corporation statistics, a total of 4.4m square metres (sqm) or 46.5m sqft of new industrial space is either under construction or in planning and projected to complete over the next four years, from 2017 to 2020. Of this, more than 70% of the space will be completed and operational by end-2018.

Among industrial types, the single-user factory space will see close to 1.7m sqm increase in new supply (around 7% rise), multi-user factory space will see close to 1.5m sqm of new supply (about 14% growth), followed by warehouse space adding close to 0.9m sqm (approximately 9% rise). The business park space will add another 0.2m sqm; most of the space is pre-committed and thus, not an issue for existing landlords.


Industrial sector’s overall vacancy rates to increase to 10-11% by 2017; bottoming out from 2018 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 2Q17 and we expect further weakness until the end of 2017, before it bottoms out from 2018 onwards.

As the influx and pace of completions are skewed over 2016-2017, we believe that, on average, spot rentals are likely to slip 5% in 2017, except for business park space which we believe will be resilient with around 0-3% growth. We expect rentals across the industrial, warehouse, and business park sectors to start turning up in 2018.

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Our In-House Experts

Derek TAN
+65 668 23716

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DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E