CBRE comments on JTC Q2 2020 statistics

By Desmond Sim, Head of Research, Southeast Asia

• Following a slight decline in Q1 2020, the JTC All Industrial Rental Index fell further by 0.7% q-o-q in Q2 2020. This is unsurprising due to the COVID-19 outbreak and “circuit breaker” measures which were implemented for majority of the quarter. Trade indicators have exhibited a similar trend, with manufacturing output slipping by 7.4% y-o-y in May and PMI remaining in contraction territory at 48.0 in June.

• Rental declines were observed across both the single-user and multiple-user factory submarkets. The JTC Single-User Factory Rental Index dropped by 1.0% q-o-q, while the JTC Multiple-User Factory Rental Index saw a 0.5% q-o-q decrease. This is an indication that the weak manufacturing climate has begun affecting overall leasing volume, especially during the “circuit breaker” period where most manufacturing activities were halted.

• Despite the weak economic backdrop, the occupancy rate of single-user factories rose by 0.4 percentage points to 91.1%. In contrast, the occupancy rate of multiple-user factories dipped by 0.4 percentage points to 87.5%. The disparity between the two could be attributed to the single-user factory submarket consisting mainly of pre-committed space; whereas the multiple-user factory submarket is largely made up of older stock with lower specifications, which may have weighed down overall occupancy.

• Similarly, the warehouse sector was impacted by the pandemic as the JTC Warehouse Rental Index shrank by 0.7% q-o-q in Q2 2020. Nonetheless, on the back of government stockpiling and a spike in demand for storage space during the “circuit breaker” period by e-commerce, food logistics and third-party logistics players, warehouse occupancy edged up by 0.8 percentage points to 88.3%. Increases in occupancy were observed mainly in the East, North-east and West regions, where many prime logistics buildings with higher specifications are located.

• Moving forward, as the pandemic continues to run its course, the rental declines observed this quarter signify the downward pressures that continue to be placed on the industrial sector. While CBRE Research expects factory rents to be less resilient amid the unfavourable economic conditions, heightened demand for prime logistics spaces as well as the limited upcoming supply compounded by delays in project constructions could help to lend some support to overall warehouse rents.

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