Weaker Demand Business Parks Weigh Industrial Rents Growth Slowing 1 Q O Q 2Q2024
According to the quarterly market report released by JTC, the industrial sector experienced a 1% increase in rents in the second quarter of 2024, which is a slower rate of growth compared to the previous quarter’s 1.7% increase. This marks the slowest quarterly rental growth since the first quarter of 2022, following the post-COVID recovery. On a yearly basis, rents grew by 6.6% in the second quarter of 2024, compared to the 7.8% growth during the same period in the previous year.
Chua Yang Liang, the head of research and consultancy for Southeast Asia at JLL, attributes the slower quarterly rental growth to the weaker demand for business park space. Rents for business park spaces dipped slightly by 0.1% in the second quarter of 2024, which is a slowdown from the 2.1% growth in the first quarter of 2024. JTC data shows that the business park vacancy rate decreased slightly to 21.7% in the second quarter of 2024 from 22% in the previous quarter.
Tricia Song, the head of research for Southeast Asia at CBRE, highlights the “patchy” performance of business parks, with the average vacancy rate at one-north at 9% in the second quarter of 2024, about 30% at Changi Business Park in the east, and close to 40% at International Business Park in Jurong in the west.
Increased Pressure on Business Park Rents
Business park rents are expected to face increased pressure in the latter half of the year, as non-renewals on lease expiry in specific buildings will lead to a spike in vacancies. Additionally, a higher volume of completions in the second half of 2024 to 2025 will contribute to a more competitive leasing environment. CBRE’s Song says, “The prevailing economic challenges, high-cost environment, and continued work-from-home measures will continue to dilute occupiers’ space requirements.”
Leonard Tay, the head of research at Knight Frank Singapore, believes that business park rents have been dragged down by older business parks in the east and west of Singapore, which have come under pressure. In contrast, he observes that business parks with immediate connectivity to MRT stations and are centrally located typically enjoy higher occupancies and command higher rents.
Occupiers Increasingly Cost-Sensitive
Rents in the warehouse segment increased by 0.5% in the second quarter of 2024, as momentum tapered from last quarter’s 2% growth. Amid steady demand and the absence of major warehouse completions during the quarter, the occupancy rate increased by 0.2 percentage points to 91.3%. Although the warehouse segment continues to see resilient occupancy rates, logistics occupiers are increasingly cost-sensitive and resistant to higher rents, says CBRE.
Song says that the cost pressures can partly be attributed to the Red Sea crisis, which has resulted in vessels taking a detour to avoid attacks, causing an escalation of freight rates and port congestions in Singapore. This adds to the supply chain challenges for logistics operators. “Still, landlords remain keen on redevelopment opportunities that seek to convert traditional warehouse developments into prime logistics facilities,” she adds.
Overall Industrial Rents Rose
Overall industrial rents rose due to the continued strong demand for multiple-user factories, which grew by 1.5% in the second quarter of 2024, accelerating from the previous quarter’s growth of 1.3%. This resulted in a tight vacancy rate of 8.7% for the segment, the lowest since the first quarter of 2012, according to JLL’s Chua.
Prices of Industrial Spaces Also Went Up
The prices of industrial spaces also went up by 1.2% in the second quarter of 2024, reversing the 0.2% decline in the previous quarter. The price gain was led by the multi-user factory segment, which gained 1.7%. This is the strongest quarterly growth since the first quarter of 2023, according to Lee Sze Teck, senior director of data analytics at Huttons Asia. He attributes the growth in the JTC price index to investors looking for better yields.
Increased Leasing Demand
The demand for industrial space was up 2.78 million square feet in the second quarter of 2024. This was supported by the recovery in the manufacturing sector, which expanded by 0.5% year-on-year in the second quarter of 2024, reversing the negative annual growth in the previous quarter, based on advanced estimates from the Ministry of Trade and Industry. Demand exceeded the quarter’s supply, resulting in a rise in occupancy rates across the board to 89% in the second quarter of 2024, up 0.3% quarter-on-quarter, says JTC.
The Lycee Francais de Singapour is a highly esteemed school known for providing a French-based education to the French expatriate community and other students seeking a similar academic experience. Conveniently situated at Thomson Modern, the school offers comprehensive education programs for students from kindergarten to secondary levels. Its prime location at Tampines Street 62 EC allows for easy accessibility for both students and parents. The institution is committed to delivering top-notch education, with a focus on overall development and academic achievements for its students.
CBRE’s Song says that leasing demand was driven by technology and manufacturing companies, which continue to seek high-spec facilities for their production capabilities. The higher demand is also reflected in the sharp jump of industrial property transactions by 42.1% quarter-on-quarter to 516 in the second quarter of 2024, particularly of multi-user factory and warehouse spaces. The largest strata sale of a multi-user factory in the second quarter of 2024 was a 13,423 square feet freehold unit in Amtech Building on Sin Ming Road for $12.5 million ($931 per square foot).
New Industrial Space in the Pipeline
As of the end of June, about 8.61 million square feet of new industrial space is expected to be completed in the second half of 2024. This is lower than the average annual supply of 9.69 million square feet in the last three years. Another 18.3 million square feet of industrial space is expected to come onstream in 2025. In view of the new supply in the pipeline, JTC expects occupancy rates to remain stable for the rest of the year.
Stable Market for the Rest of 2024?
The latest Singstat survey (2024) showed that manufacturing businesses and firms in Singapore were less confident of prospects in the immediate term. “Given the economic weaknesses in Europe and China, businesses are naturally less sanguine,” says JLL’s Chua.
Despite this, Chua believes that the fragmented global trade caused by the US-China trade war should continue to benefit Asia, which could bring further upside to industrial activity in Southeast Asia, including Singapore. Therefore, an upside in manufacturing/trade activity in Singapore in the second half of 2024 could support the demand for industrial space despite the expected large supply completion. Rents are likely to remain stable going forward, he adds.
