Singapore's industrial leasing volume declines by 3.5% year-on-year in Q4/2022, driven by single-and multiple-user factory spaces.

Savills Research reports a slowdown in total leasing volume for industrial properties in Q4/2022, with a year-on-year (YoY) decline of 3.5%. The decline was largely driven by single- and multiple-user factory spaces, which recorded 15.5% and 1.2% YoY respectively. As such, the total leasing volume for 2022 fell 4.4% YoY, the first decline recorded since 2011 when leasing transactions declined 20.0%.

Additionally, the vacancy level for single-user factory grew for the sixth consecutive quarter by 10.9% in Q4, likely to be due to the addition of 2.73 million sq ft of new supply and some relocation among industrialists. Significant increases in vacancy rates were observed in the East (1.3 ppts) and North East (2.6 ppts) Planning Regions, particularly the West and North Planning Areas.

Notably, the business park segment recorded a significant rise in vacancy rates -an increase of 17.5% - which is the largest across all industrial property segments. The West region is the largest contributor to this trend, recording 9.3% vacancy levels.

For example, vacancy rates in International Business Park (IBP) surged to 37.3% in Q4, a 12.8% rise from 24.5% in Q3. Apart from the weaker connectivity to main transport nodes, the higher vacancy levels were also attributed to the partial completion of Perennial Business City in Q4/2022.

Despite the slowdown, the overall industrial rents continued to rise for the ninth consecutive quarter in Q4. JTC's rental index for multiple-user factory spaces increased by 2.6% quarter-on-quarter (QoQ), the largest quarterly increase since Q3/2013, while the rental index for single-user factory spaces rose by 1.3% QoQ, a slightly moderated pace compared to the 2.0% in the previous quarter.

Savills' average monthly rents for prime multiple-user factories remained unchanged in Q4 at S$2.01 per sq ft, after increasing for the past seven consecutive quarters. On the other hand, the healthy leasing demand and a shortage of quality facilities led to the rise of Savills' average monthly rents for warehouse and logistics properties by 1.3% QoQ to S$1.53 per sq ft in the quarter.

Alan Cheong, Executive Head of Research & Consultancy comments, “Although lower leasing transactions are expected in 2023, industrial rents are still expected to rise, supported by inflation and the need to hedge against potential supply chain disruptions.”

Sales Market
In the sales market, industrial sales activity across all segments continued to fall in Q4 with the onset of global economic uncertainties and slowing manufacturing sector, which might have led to investors being more cautious with their purchasing decisions.

Nevertheless, industrial sales prices still trended up, with prices for 60-year leasehold and freehold industrial properties rising by 2.4% and 2.3% QoQ to S$474 per sq ft and S$776 per sq ft, respectively in Q4. The rise in prices was driven by the strong price growth for food factory properties.

Similarly, Savills’ basket of industrial properties pointed to 30-year leasehold property prices increasing at a faster pace of 2.0% QoQ to reach S$314 per sq ft in Q4. This may be due to stronger interest among some businesses or investors favouring properties of lower price quantum.

Despite the challenges faced by the industrial property market, the Singapore government remains committed to investing in infrastructure and technology to attract foreign investors and support the growth of the industrial sector. For example, the 30-by-30 Plan to develop Singapore’s agri-food industry’s capability and capacity pushes for a more holistic food-related infrastructure.

Looking ahead, with the strong demand for logistics and food factory space, and an environment where heightened inflation persists, rents for industrial properties are expected to rise in 2023. Specifically, multiple-user factory rents are projected to increase by 3% to 5%, while logistics and warehouse rents are expected to go up by 3% to 6%. (Please refer to Table 1)

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Please download the Industrial Briefing for Q4 2022 from this link.