Savills Research forecasts industrial rents to see moderate growth rates between 0% to 3% in 2024. 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, high operating costs and a challenging business environment worldwide are factors contributing to this projection. (See table 1)

The global economic landscape is likely to continue to be bleak, as geopolitical uncertainties could lead to further supply disruptions and commodity price shocks. Although the US Federal Reserve is likely to reduce its benchmark interest rate this year, borrowing costs in Singapore are expected to remain high as banks are unlikely to lower their interest rates significantly in 2024 amid the ongoing economic uncertainties and rising costs.

However, global electronics demand is anticipated to recover, which will likely see the manufacturing sector continue its expansion. This should lend some support to the demand for industrial space across the high-specs industrial and prime logistics segments.

Warehousing demand should remain strong, but it is unlikely that the market will see another surge for warehouse space for stockpiling. Moreover, Singapore’s consumer spending growth may remain slow in 2024 due to inflationary pressures. As the capacity for consumption could be limited in the near term, businesses are less likely to need more industrial space for goods.

On the leasing front, the industrial market saw a pick-up in leasing momentum in Q4. Total leasing volume rose by 4.1% year-on-year (YoY) to 3,070 tenancies. This can be attributed to higher leasing demand for warehouse (+23.9% YoY) and single-user factory (+10.2% YoY) spaces. This brings the total number of tenancies signed in 2023 up to 12,499, 2.1% higher than 2022.

Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore comments, “Due to stable demand, we see industrial rents continue their growth last quarter, with the multiple-user factory segment growing at a faster rate of 2.3% quarter-on-quarter. Although Savills’ monthly prime industrial rents for multiple-user factories remained firm at S$2.22 per sq ft in Q4, rents had grown by 10.5% from a year ago.”

The flight-to-quality trend amongst tenants has been seen across global markets and is taking place almost regardless of sector, with businesses opting for high-quality, high-specs real estate that meets ESG, wellness and people-focused goals such as green certification or more modern buildings. In Singapore, this trend continues to intensify in Q4, helping boost the sector’s growth in 2023 with improved take-up for new and prime multiple-user factory and warehouse space. Multiple-user factory vacancies have eased to a 10-year low at 9.5%, -0.8 of a percentage point (ppt) quarter-on-quarter (QoQ). The vacancy rate for warehouse space also fell by 0.3 of a ppt QoQ to 8.4% in Q4.

Sally Tan, Managing Director, Commercial, Industrial & Logistics, Savills Singapore says, “The ‘flight to quality’ syndrome is driven by a desire for investments that align with both financial and ethical goals.

Working with end-user occupiers, our experience is also on cost considerations by the companies, which involve focus on long-term savings and efficiency gains. High-quality assets may have lower operational costs over time, as they often require fewer maintenance expenses and offer better water usage management and energy efficiency.”

Read the Q4 2023 Industrial Leasing briefing here.