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Industrial property sector outlook stable in Q4 and beyond

26 October 18 | The Business Times


THE outlook for the industrial property sector is expected to remain stable going into the fourth quarter and beyond, although the impact from the US-China trade war remains a potential risk.

In the third quarter, industrial prices edged up 0.1 per cent from the previous quarter, while industrial rents slipped 0.1 per cent - marking a decline for the 14th consecutive quarter - owing to softer rents in multiple-user factories, single-user factories and business parks, JTC's quarterly report showed.

Compared to a year ago, prices of industrial space softened 1.1 per cent, while rents dipped 0.4 per cent.

Meanwhile, the occupancy rate climbed 0.4 percentage point quarter-on-quarter to a six-quarter-high of 89.1 per cent, led by single-user factories, business parks and warehouses. From a year ago, the occupancy rate was up 0.5 percentage point.

Looking ahead, senior director and head of research at Knight Frank Singapore Lee Nai Jia expects rents and prices of industrial properties to stay stable. He said: "While the effects of the trade war may trickle down to the manufacturing sector, especially the electronics sector, it is unlikely to translate into a sudden drop in demand for industrial space. This is because companies need to ensure they have the capacity to meet demand when the market picks up again."

Dominic Peters, senior director (industrial services) at Colliers International, is cautiously optimistic on the sector, but pointed to the severity of the US-China trade war as an uncertainty. Noting that the fresh industrial supply for 2019 looks similar to 2018, he added: "We expect the industrial market to be two-tiered - with rents for the high-specs and business park space inching up, while the older space could still decline slightly to flattening out."

Desmond Sim, CBRE's head of research (Singapore & South-east Asia), described the Q3 performance as possibly the calm before the storm. He added: "Singapore may be affected as there are Singapore exports that head to China for re-assembly which may eventually head to the US. Nonetheless, positivity around South-east Asia trade remains as Singapore is a key logistics hub in the South-east Asian region."

In the third quarter, rents for multiple-user factories saw the highest rate of decline among all categories, while warehouse rents were flat for the first time after 13 consecutive quarters of decline, analysts pointed out.

Rents at single-user factories fell for the fifth consecutive quarter, albeit at a slower pace of 0.1 per cent. At the same time, however, the occupancy rate strengthened by 0.7 percentage point to 91 per cent.

Warehouse occupancy rate increased by 0.9 percentage point to 89.4 per cent, suggesting that the market has been slowly absorbing the latest amount of supply which came onstream last year and in 1H18, noted Colliers International's head of research (Singapore) Tricia Song.

For business parks, occupancy went up by one percentage point to 86 per cent, but rents still eased 0.1 per cent quarter-on-quarter, which is said to be due to older business parks. This decline comes after five consecutive quarters of growth.

Another 1.8 million square metres (sqm) of industrial space - which represents about 4 per cent of current industrial stock - is expected to come onstream in the fourth quarter of this year and in 2019, JTC said. In comparison, the average annual supply and demand of industrial space in the past three years clocked around 1.6 million sqm and 1.2 million sqm respectively.

Nicholas Mak, executive director of ZACD Group, reckons that the market would be able to absorb the new supply, and that vacancy rates for factory spaces over the next two years should improve and vary between 10.3 and 10.7 per cent. "Buying demand and investment interest for industrial space are expected to be healthy due to the July residential market curbs," he said, but went on to add that rising interest rates and simmering trade tensions added to uncertainties.

Meanwhile, Tay Huey Ying, head of research and consultancy at JLL Singapore, said: "Barring a worsening of the external environment or other unforeseen external shocks, we are hopeful that rents and prices may turn around by end-2019 as the low pipeline supply in 2018 and 2019 will allow demand to play catch-up with supply."