Prices and rentals of industrial space continue to moderate in Q2

Prices and rentals of industrial space continued to moderate in tandem with occupancy rates, according to JTC's latest quarterly market report of industrial properties released on Thursday.

In Q2 2017, the price and rental indices for the overall industrial property market fell by 1.6 per cent and 0.8 per cent respectively compared to the previous quarter. The price and rental indices fell by 8.2 per cent and 4.1 per cent from a year ago.

About 1.4 million sqm of industrial space, including 311,000 sqm of multiple-user factory space, is estimated to come on-stream in Q2 2017. In the past three years, the average annual demand for industrial space was around 1.3 million sqm while supply was around 1.8 million sqm. JTC said that this is likely to exert further downward pressure on occupancy rates, prices and rentals, translating to reduced business costs for industrialists.

There were about 1,100 units in uncompleted strata-titled developments that remained available for sale at the end of the second quarter of 2017. These totalled about 244,000 sqm of space, representing around 2 per cent of the existing multiple-user factory stock, which JTC said can provide options for industrialists to site or relocate their operations in these strata-titled developments.

Occupancy rate for the overall industrial property market is relatively steady as it fell by 0.7 percentage point on both quarter-on-quarter and year-on-year bases to 88.7 per cent. For multiple-user factory space, the occupancy rate decreased by 0.6 percentage points on a quarter-on- quarter basis and 0.5 percentage points on a year-on-year basis to 86.4 per cent.

The transaction volume continued to fall on a year-on-year basis. Based on the number of caveats lodged for industrial properties, the transaction volume fell by around 28 per cent in Q2 2017 compared to a year ago, and 51 per cent from three years ago.

In the second half of 2017 and 2018, about 2.5 million sqm of industrial space is estimated to come on-stream. This is about 5 per cent of current industrial stock. For multiple-user factory space, about 311,000 sqm and 463,000 sqm are estimated to come on-stream in the second half of 2017 and in the whole of 2018 respectively.

Earlier this month, the government announced plans to increase the supply of industrial land to 13.9 hectares (ha) in the second half of the year, about a 24 per cent increase from 11.25 ha in the first half.

With supply being more than demand, the industrial market remains generally subdued. The business park segment remains a bright spot due to the lack of a visible supply pipeline.

Rentals for the business park segment increased by 2.1 per cent in Q2 2017 from a year ago while occupancy rate was up by 1.7 per cent. The business park segment recorded the most notable increases across all segments.

More supply is anticipated further downstream to ensure a sustainable market. Moving forward, rents are expected to remain soft despite a recovery in the manufacturing sector. The growth in demand for industrial space is likely to be driven by the electronics and information & communication sectors.

Rents for business parks in the CBD fringe and outlying areas recorded S$5.80 psf/mo and S$3.89 psf/mo respectively in the quarter.

Adapted from: The Business Times, 28 July 2017