INDUSTRIAL LEASING VOLUME INCREASED 6.1% IN Q2/2023 TO 3,298 TENANCIES

Savills Research reports that leasing volume in the industrial market rose 6.1% year-on-year (YoY) to 3,298 tenancies in Q2/2023. The increase was due to more tenancies signed for multiple-user factory spaces, which increased 10.6% YoY, the highest in the last two years. Meanwhile, leasing transactions for single-user factory and warehouse segments fell by 5.7% and 13.6% YoY respectively.

Although leasing activity for the two segments had been down, the rents recorded in Q2 were higher than a year ago. Apart from rental increases, the higher total rental value could be due to a rebound in demand for larger facilities.

JTC’s overall industrial rents continued to increase further for eleven consecutive quarters in Q2/2023, reaching its highest record in the last eight years. Rents rose across the board in Q2, albeit at a slower pace for single-user factory and warehouse spaces. Nonetheless, prime rents remained strong, with Savills’ average monthly rents for prime multiple-user factories rising by 5.3% quarter-on-quarter (QoQ) to S$2.13 per sq ft in Q2. Alongside rising inflation and strong demand for logistics and food spaces, the average monthly rents for prime warehouse and logistics properties in the Savills’ basket increased by 4.5% QoQ to S$1.61 per sq ft in Q2.

Following three consecutive quarters of decline, strata industrial sales activity increased 8.4% QoQ to 424 transactions in Q2. Although there are factors such as high interest rates and a slowdown in the manufacturing sector, sales activity started to show recovery across all segments of the industrial property type.

While multiple-user factories saw the slowest recovery (4.6% QoQ), single-user factory and warehouse recorded an uptick of 44.0% and 28.6% QoQ in their respective sales volume. Despite the increase in sales volume, the total transaction value for single- and multiple-user factory segments fell in Q2. This could imply that buyers are more attracted to more palatable size and quantum, given uncertain future business conditions, and higher borrowing costs.

The Savills’ basket of industrial properties showed that in Q2/2023, prices for 30-year and 60-year leasehold industrial properties increased by 1.4% and 2.4% QoQ to S$320 per sq ft and S$495 per sq ft respectively.

On the other hand, the rate of price growth for freehold properties continued to moderate in Q2. Compared with 1.6% QoQ in Q1, prices for freehold properties rose 1.1% QoQ to S$797 per sq ft.

Despite escalating headwinds and subdued growth in the manufacturing sector, most industrial property types are expected to see further growth, with prices and rents remaining on an upward trend for the rest of the year. While demand for multiple-user factories is likely to be driven by new growth areas such as high-value manufacturing industries, rents are forecasted to increase by 4% to 6% in 2023. Owing to limited supply for quality warehouse space, rents for warehouses are also expected to grow by 3% to 5% in view of the strong demand for modern and high-specification logistics spaces.

Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore: “We believe that both rents and prices for industrial and warehouses should continue to rise in 2023. One factor keeping these two afloat is inflation. The other is higher interest rates. Also, as most landlords are financially strong, it puts them in better stead to pass their higher interest expenses to tenants.”

The full report can be viewed online here.