Overall Outlook

Key observations

Record-high new supply expected in FY24. Compared to initial estimates for new completions (c.1.8m sq. m.) in the beginning of 2023, only half (901,000 sq. m.) of new industrial supply was added during the year. This has led to some of the new supply being rolled over to FY24, with a record supply of more than 2.0m sq. m. expected to be delivered this year. Single-user factory space continues to make up the bulk of the new supply this year – about 57% – while warehouses constitute c.19%, with multiple-user factory and business parks making up 11% and 13%, respectively. The warehouse and multi-user factory space segments continue to report positive net absorption and higher occupancy rates, while the single-user and business park segments saw further negative net absorption rates. Following another quarter of strong take-up in the multi-user factory space, occupancy rates are at its highest levels in over a decade at c.90.5% in 4Q23.

In contrast, occupancy rates for business parks have now fallen to a low of c.78.4%, levels not seen since 2010. With the Punggol Digital District expected to come online in phases over the next couple years, we see potential further impact to business parks' occupancy rates and rents in the medium-term. Total demand in FY23 was c.597,000 sq. m., the lowest rate of take up in over the past two decades. Although demand from the multi-user and warehouse segments remained healthy, the net return of space for the single-user and business park segments brought down overall demand in FY23.

Singapore PMI continues to expand; expected to continue improvement in 1H24. Singapore’s January PMI improved to 50.7, marking the fifth consecutive month of expansion, and the highest reading since December 2021. The electronics segment – which makes up about 40% of Singapore’s output – recorded a very healthy 0.4-point uptick in January to hit 50.6. According to EDB’s quarterly polls, the electronics cluster emerged the most optimistic for the next six months among manufacturers. Optimism from the electronics sector has been largely led by the semiconductor segment, which anticipates a gradual improvement in demand as inventory levels fall amid robust demand for artificial intelligence-related chips. Of the remaining five segments, the transport engineering, precision engineering, biomedical manufacturing, and general manufacturing clusters are also generally optimistic on their business outlook for the first half of 2024. Only the chemicals cluster remains neutral on its business outlook for the next six months.

However, Singapore’s factory output could remain weak in the coming months as external demand continues to be weighed down by the high interest rate environment in the US and in Europe. Economists have also warned that the ongoing property slump in China could dampen consumer and business sentiments, while tensions in the Red Sea may lead to global supply chain disruptions, which could potentially translate into delays in transportation and increased input costs.

What are we watching?

Take-up rates of industrial properties. With the pick-up in new supply over the past few quarters, net absorption in FY23 was a negative c.304,000 sq. ft., the second consecutive year of negative net absorption. This was primarily due to the addition of more than 2.2m sq. m. of new supply in the past two years, compared to the average annual take up of c.0.7m sq. m. Looking ahead, we anticipate negative net absorption to continue this year as a record amount of new supply is projected to be delivered. Although the bulk of the new supply will be coming from the single-user factory space, where industrialists typically develop for their own use, we believe there could be some “spillover” effects where some of the unutilised space could be sub-let to other tenants, potentially competing for tenants who would otherwise have taken up space at multi-user factory spaces or warehouses.

Among the four industrial segments, we are most cautious on the business park segment, where an estimated 347,000 sq. m. of new supply is to come online in the next two years – c.174,000 sq. m. per year – excessive compared to the past five years, where an average of only c.55,000 sq. m. of new supply was added each year. Moreover, occupancy rates for business parks have been steadily declining over the past five years as demand fell short of new supply.

To read the full report click the download PDF link.

Derek TAN Weixiang
[email protected]
+65 668 23716

Dale LAI
[email protected]
+65 668 23711