Short-lived Recovery For Strata Industrial Sales Activity With Activity Slowing By 19.7% Qoq In Q3 

Savills Research revealed that the overall vacancy rate in multiple-user factory had eased further QoQ in the third quarter to 8.4% - a level not seen in 28 years since 1996. The drop could be due to landlords revising their rental expectations or offering incentives to fill up spaces in less prime locations.

Meanwhile, vacancy for single-user factory rose QoQ to 12.3% in Q3. This could be attributed to space in most single-user factories had already been pre-committed before they were constructed. End-users could take some time to move into the newly completed developments, hence driving up the vacancy level alongside the influx of new completions.

In the warehousing and logistics segment, the vacancy has also increased to 8.9% in Q3, compared with 8.7% in Q2. Sluggish demand in-store and online had seen third-party logistics providers reducing their footprint in the face of cost pressures.
Overall, Singapore’s industrial leasing activity strengthened from two quarters of slowdown, with total leasing volume rising by 2.1% year-on-year (YoY) – a two-year high – in Q3. This was due to higher leasing demand for warehouse spaces which has 10.1% more tenancies signed, compared to a year ago. Although leasing demand for factories remained muted in Q3, total leasing volume in the reviewed quarter is the highest this year.

Rents in Savills’ basket of monthly prime multiple-user factory properties increased further by 1.3% QoQ. This is due to strong rental growth in some prime developments with good accessibility and amenities. However, Savills’ basket of warehouse and logistics properties faced rental pressure from softer demand, recording a muted rental growth of 0.2% QoQ.

Q2’s recovery in strata industrial sales activity was premature as sales activity slid by 19.7% QoQ to just 440 transactions in Q3. This could be due to the high base effect in the preceding quarter. Nonetheless, the sales level in Q3 rose 7.6% from a year ago and remained higher than the five-year quarterly average of 387 transactions. The interest rate cut, as well as better market sentiments along with improved performance in the manufacturing sector were possibly contributing factors.

In the third quarter, the growth rate in the JTC industrial and multiple-user factory price index eased by more than half in Q2, rising by 0.5% and 0.7% QoQ respectively. While Savills’ basket of freehold industrial properties also went up at a slower pace of 0.2% QoQ to S$832 per sq ft in Q3, the prices for 30- and 60-year leasehold properties increased by 3.6% QoQ to S$336 per sq ft and 2.5% QoQ to S$529 per sq ft respectively.

Sally Tan, Senior Managing Director and Head of Client Solutions at Savills Singapore says, “Cost pressures - including supply chain costs, construction material costs, energy prices and sustainability requirements are playing a key role in shaping the future of industrial real estate. While these factors are pushing up costs, demand remains strong in key sectors like logistics, advanced manufacturing, healthcare and data centres, which should help stabilise rental rates and capital values in the long term. Both businesses and developers will need to carefully navigate these cost challenges by embracing technology, automation, energy efficiency and government incentives to stay competitive.”

Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore comments, “As business conditions continue to be buffeted by both global economic challenges and cost pressures, tenants’ tenacity to keep up the fight is motivating them to move to cheaper accommodation. The percolative effect is keeping rents for multiple-user factory space and prices for shorter term industrial property leases up.

“However, we will see a surge in pipeline supply next year, almost a 40% increase. Notably, there will be more warehouse and business park spaces, which will put further pressure on occupancy and rents. While landlords are likely to be more generous with incentives such as longer rent-free period and fit-out allowances to attract prospects, rents across all segments will be bound to remain under pressure in the near term. We forecast rents for multiple-user factory, warehouse and logistics space to rise at a moderate pace of up to 3.0% this year,” he adds.