As a premier global trade and business hub, Singapore’s industrial property market is a vital and indispensable cog in the nation’s economic machine, continually evolving together with the needs of investors, businesses, and industries alike. 

The Urban Redevelopment Authority (URA) plays a crucial role in planning out the long-term development of the nation’s property market and ensure that Singapore’s limited availability of land is utilised in the most efficient manner.

This carefully measured approach to land allocation has allowed Singapore industrial property prices and rents to remain healthy despite global economic headwinds. 

With the Singapore government’s plan to conduct the biggest auction of industrial land in a decade in the first half of 2024 , the increased supply will undoubtedly put more pressure on existing landlords to innovate while giving tenants the ability to renegotiate more favourable terms. 

What are the emerging trends worth keeping an eye on in Singapore’s industrial property market? What are the opportunities and challenges that will result from these emerging trends? How can buyers and sellers of Singapore industrial property navigate the changing landscape to improve overall returns?

Two Emerging Trends in Singapore’s Industrial Property Market

As of the 1st quarter of 2024, Singapore’s industrial property market broke its long streak of gains that started in the 3rd quarter of 2020. The index measuring all Industrial property prices fell slightly 102.9 points to 102.7 points quarter-on-quarter.

This modest pullback in the industrial property market brought about by lighter leasing and sales transaction volumes masks underlying strength in rental rates and industrial prices. 

Savills’ Q1 2024 Industrial Briefing noted that prime industrial rents for warehouse space grew another 2.0% quarter-on-quarter (QoQ) to S$1.68 per sq. ft.. Prices for industrial property, meanwhile, continued to climb, with freehold and 60-year leasehold industrial properties gaining 2.2% and 1.6% QoQ, respectively. 

Industrial real estate, together with the residential market, have bucked the downward trend in commercial and office property. Going forward, buyers and sellers of industrial real estate should keep an eye on two emerging trends:

1.Upgrading and enhancement of older developments to mitigate rising costs. 

There is a trend of landlords implementing asset enhancement works to older industrial properties as a cost-effective solution to improve the value and performance of such assets.  Not only does it save time, but retrofitting is also more energy-efficient and environmentally friendly as it aligns with sustainability goals and may be viewed favourably by tenants and stakeholders. Making buildings more energy-efficient not only benefits the environment by reducing carbon emissions but also can lead to cost savings for both landlords and tenants in the long run. 

Business Park developers are actively developing high-specs industrial spaces to remain attractive, including upgrading buildings in older clusters or redeveloping them to fit the requirements of high-value businesses. 

Savills had since the completion of premium Business Park like the Mapletree Business City and one-north, categorized it as Business Park (Prime) and Business Park (Standard). Based on the rental trends in the last 5 years, there is a premium of approximately 50% in the rentals achieved in the basket of Business Park (Prime).

 While interest rates remain high and inflationary pressures persist, landlords and developers are seen pursuing this path of asset enhancement for technologically dated structures. This trend will continue while the outlook for the global economy remains weak in 2024, as industrial property owners seek to differentiate themselves in a crowded market.

 2.Stronger demand and tighter supply for high-quality, high-specification industrial property.

Singapore’s struggles in manufacturing in 2023 are expected to continue in 2024, as the global economy attempts to regain its footing. Easing inflation and improved supply chain conditions will likely first deliver gains in high-value manufacturing, including semiconductor manufacturing boosted by innovations in artificial intelligence and cloud computing.

The Q1 Industrial Briefing also highlighted the flight-to-quality trend amongst tenants across global markets and taking place almost regardless of sector, with businesses opting for high-quality, high-specs real estate. 

This has led to multiple-user factory vacancies staying at 10-year lows of 9.5%, flat QoQ. The vacancy rate for warehouse space climbed by 0.5 of a ppt QoQ to 8.9% in Q1.

With a slew of new developments (2.4 million sq ft multiple user factory GFA, 4.2 million sq ft warehouse GFA) in the pipeline this year, this should lend support to both prices and rental rates for industrial space in the coming years. Savills forecasts industrial rents to grow 0% to 3% in 2024.

A Relatively Healthy Market but It’s Important to Pick Your Spots

Singapore’s industrial property has been one of the most resilient segments of its real estate market owing to the nation’s regional trading and business hub status. The reliable infrastructure and a stable business climate provided by Singapore to locators will continue to attract investments in the industrial sector, as it has been doing so over the past decades.

The industrial property market benefits from a proven long-term urban planning approach by the URA aimed at sustainable development that can adapt to changes in the global economic landscape. The supply of land is controlled based on what the URA deems is necessary to foster to continued healthy development of the market.

Buyers and sellers should note that the best areas to be in the industrial property sector for the short- and medium-term are those benefiting from these two trends. 

One is the expected increase in supply of leasable industrial space over the next 12 to 24 months, which is expected to keep prices and rental rates stable overall. The second is the trend of tenants seeking higher-spec, higher-quality industrial spaces capable of accommodating high-value industries. 

Focusing on these areas in the industrial property market should help investors weather the weaker short-term business climate while positioning themselves for better returns in the coming 2 to 3 years.

  ¹https://www.mingtiandi.com/real-estate/research-policy/singapore-rolls-out-biggest-industrial-land-sale-plan-in-a-decade/

²https://tablebuilder.singstat.gov.sg/table/TS/M212181#!