Singapore's Q1/2023 industrial leasing volume rebounds with 2.5% year-on-year increase, breaks three quarters of decline

Savills Research reports a rebound in total leasing volume for industrial properties in Q1/2023, increasing 2.5% year-on-year (YoY) to 3,229 tenancies in total, following three consecutive quarters of decline. The rise was due to the increase in signed tenancies across all property types except the single-use factory segment.

While leasing volumes for multiple-user factory spaces rose 1.8% YoY in the quarter, leasing transactions for single-user factory spaces fell by a larger 17.5% YoY, as compared to the 15.5% decline in the previous quarter. Like those in the multiple-user factory segment, leasing transactions in the warehouse segment also increased by 12.1% in Q1/2023, a reversal from the 9.4% decline in the previous quarter.

Due to a contraction in demand for single-user factory space and lower leasing transactions, the vacancy rate grew for the seventh consecutive quarter by 0.4 of a percentage point (ppt) quarter-on-quarter (QoQ) to 11.3% in Q1/2023. Significant increases in vacancy rates were observed in the North, West, and North-East Planning Regions, increasing by 2.4 percentage points (ppts), 1.9 ppts and 1.6 ppts respectively.

Warehouse vacancy levels expanded in the quarter, increasing 1.4 ppts QoQ to 9.7% after declining in the previous quarter, which was attributed to a boost of 1.3 million sq ft in supply, making it the largest completed warehouse supply in a quarter since Q2/2021 when completions amounted to 2.8 million sq ft.

The overall industrial rents continued to increase further for the tenth consecutive quarter in Q1/2023, with JTC’s rental index for all industrial properties growing by a larger 2.8% QoQ as compared to the 2.1% in Q4/2022. This was the largest quarterly increase since the rental index expanded 4.4% in Q3/2013. The rental index for both single-user and multiple-user factory spaces grew 3.0% QoQ, the most significant since Q1/2014 and Q3/2013 when rents for single-user and multiple-user factory spaces expanded 3.5% and 4.4%, respectively.

Savills’ average monthly rents for prime multiple-user factories rose 0.9% QoQ to S$2.03 per sq ft in Q1/2023 after remaining unchanged in the previous quarter. Despite rising inflation and strong demand for logistics and food spaces, Savills' average monthly rents for warehouse and logistics properties increased by 0.4% QoQ to S$1.54 per sq ft in the quarter.

Savills’ prime business park monthly rents rebounded in Q1/2023, reversing the marginal decline of 0.3% in the previous quarter and registering a QoQ increase of 0.6% to S$5.95 per sq ft. On the other hand, monthly rents of Savills’ standard business park properties continued to decrease for the second consecutive quarter by a marginal 0.3% QoQ to S$3.99 per sq ft.

Alan Cheong, Executive Head of Research & Consultancy comments, “While the metrics like vacancies correlate with the general economic malaise confronting the manufacturing sector, rents and prices appear to be trending the other way. One interpretation of this divergence is that it is only short-term in nature and soon, both rents and prices may fall back in line to reflect the challenging economic circumstances.

For now, the global economic and the technology malaise is impacting multinational companies that occupy single-user factories more than domestic companies.

Nevertheless, for the next two to three quarters, we may get to see both price and rental support from the multi-user factory and warehousing segments of the industrial market, particularly those focused on the domestic front. (Please refer to Table 1) For business park, so long as the tech sector does not pull out of its dive, conditions will remain challenging.”

Find out more in the Industrial Briefing for Q1 2023 here.