The fastest-growing rents in 4Q2022 were in multi-user factories, where they rose 2.6% q-o-q

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Industrial rents increased in 2.1% q-o-q in 4Q2022 and remained at the same rate of growth recorded in last quarter, according to the data published by JTC on the 26th of January. This is the 9th consecutive quarter of growth, which brings the full-year growth in rental at 6.9% for 2022, exceeding the 2% growth recorded in 2021.

Prices for industrial properties have increased to 1.7% q-o-q in 4Q2022 which brought the full-year rate of growth up to 7.5%. “This is the highest rate of growth for both prices and rents since 2012” notes Lee Sze Teck, senior director of analysis for Huttons Asia.

The overall occupancy rate for industrial properties decreased in 0.3 percentage points in the 4Q2022 up to 89.4%. The drop was driven by an increase in new building completions, which saw 5.2 million square feet of industrial space being completed in the 4Q2022 period – the most since the year 2017. The increase in supply was greater than demand, which was at 2.9 million square feet in 4Q2022, based upon the total inventory occupied.

Multi-user factories experienced the greatest rent increases in 4Q2022, recording increases by 2.6% q-o-q. Tricia Song, the head of research for Southeast Asia at CBRE believes that the increase may be due to the higher rents that were realised in recently completed projects such as INSPACE located at Industrial Road and 165 Kallang Way. “While occupancy levels for multi-user factories are down 0.1 percentage point between q-o-q in 4Q2022, and 1.1 percentage points year-on-year in the 4Q2022 period, CBRE Research believes that there’s a trend towards high-end quality because the demand for newer and better-quality factories, particularly high-tech industrial spaces has been steady and the higher rents are a result,” she adds.

In 2022 as a whole multi-user facilities saw rent increase in the range of 8.3%, the highest in all industrial sectors and beating that of 2.5% growth registered in 2021. “We believe that this is driven predominantly by the shortage of space for high-quality and highly-specified spaces for industrial use,” says Tay Huey Yun, director of research and consultancy Singapore with JLL. Tay says that the absorption net of multi-factory spaces in 2022 will be the highest to this point.

Rents for warehouses increased in 2.2% q-o-q in 4Q2022 increasing from 1.9% growth registered in 3Q2022. Warehouse occupancy improved by 0.9% q-o-q to reach 91.7% in 4Q2022, which CBRE’s Song declares is the highest level since 3Q2015. Full-year rental growth for warehouses came as 7.9%, compared to 2.7% in 2021, CBRE’s Song is attributed to the steady demand from businesses who continued to implement with their “just-in-case” inventory plans due to the ongoing Ukraine-Russia conflict as well as the tight supply of new inventory.

Lam Chern Woon, head of research and consulting at Edmund Tie, points out that warehouses are the only segment that saw an increase in occupancy in the 4Q2022 quarter. “Despite some warehouse completions during the quarter, the overall stock in warehouses fell by 9,000 sqm. This could be because of the elimination of some inventory in order to modernize it to meet the needs of modern logistics,” he expands.

In addition, single-user factory rents increased by 1.3% q-o-q, while the business park rental rate increased to 1.0% q-o-q in 4Q2022. Brenda Ong, executive director of industrial and logistics for Cushman & Wakefield, adds that the business park sector is still a two-tiered market where rents and demand are much higher for business parks in the city fringe in comparison to their adjacent counterparts.

Moving forward Edmund Tie’s Lam expects lower rental growth in 2023 due to an environment that is less favorable. “Industrialists are likely to be cautious while leasing demand in outward-oriented industries like manufacturing and electronics are likely to decrease due to the worldwide semiconductor downcycle,” he explains.

Additionally, the influx of supply could limit rent growth. Around 18.9 million square feet of new construction is expected to be in operation by 2023 and that, as Huttons’ Lee highlights is the highest amount since the year 2017. The majority of the new constructions are single-user factories and new warehouses will make up 5.3 million square feet.

Leonard Tay, head of research at Knight Frank Singapore, believes that industrial rents will keep rising in 2023 but at a slow rate. “Despite the expected increase in industrial supply amid a decline in exports and a declining manufacturing outlook, Singapore will continue to draw fixed asset investments into the manufacturing industry as multinational companies search for countries with stability in the political arena with a well-educated workforce as well as modern infrastructure as part of their flight-to-stability strategy,” he opines.

He expects an increase in industrial rents of between 1% or 3% for the entire period of 2023. He also says that in the logistics sector where space is limited renting for warehouses with high-quality space could increase up to 3% up to%.

Cushman and Wakefield’s Ong agrees. She expects rent growth and industrial prices to slow to around one% or 4% in 2023. However, warehouse rents may still be higher than in the event of a robust demand.