CBRE Commentary on JTC's Announcement on Q3 2023 Statistics

Rents for multi-user factories increased by 2.0% q-o-q, easing from the expansion of 3.0% q-o-q in the prior quarter. However, over the past year, the rental increase for multi-user factories is still the highest among the various segments with a 11.1% y-o-y increase. It has also risen 20.4% from the trough in Q3 2020. In 2023, there has been several completions of high specifications multi-user factories, with the latest being 7002 AMK in Q3 2023. This has helped to bring average rents higher for this segment.
• For the quarter, multi-user factory occupancy rates saw a decline of 0.2 ppt q-o-q to 89.7%, as new supply exceeded demand. Net supply in Q3 2023 was the highest over the past four quarters. With ample high specifications multi-user factories on the market, tenants can secure choices spaces in well-located projects. However, CBRE Research observed that tenants are opting to renew their leases at existing premises to save on fitout costs.

Prices continued to inch upwards but at a slower clip than rents in Q3 2023, with the All-Industrial Price index up 1.4% q-o-q and 6.2% y-o-y. This is the fifth consecutive quarter of prices increasing at a slower rate than rents. Although yields remain relatively attractive for leasehold industrial assets, investors are probably more mindful of the high cost of financing.

Supply pipeline: 9.0 million sq.ft. NLA of industrial space (including Business Parks) has been completed in 2023 so far, with about 3.2 mil sq. ft. GFA of new industrial space scheduled for completion in Q4 2023. Of the upcoming supply, the single-user factory segment makes up 63%, warehouse space 23%, with the remainder of the pipeline comprising business park space and multi-user factory space at 12% and 2% respectively. According to JTC, about 20.9 mil sq. ft. of new industrial space will come onstream in 2024, which is around 50-60% more than 2023’s completions.

Outlook

Weak external demand from major economies continues to weigh down Singapore’s manufacturing output and exports. Both indicators have extended their contractions into the 12th consecutive month. Although SIPMM’s PMI registered an expansion in Sep 2023 after six consecutive months of contraction, the manufacturing sector will require more catalysts to see a sustained reversal from the slump.

Occupier sentiment has turned cautious this quarter as most of the leasing activity was driven by renewals and relocations. Given the economic backdrop, the preference by occupiers is to temper expansionary activity and consolidate their real estate portfolio. However, enquiries remain active as industrialists keep a lookout for quality spaces. In Q3 2023, CBRE Research observed that overseas occupiers in logistics, agritech and manufacturing established their footprint in Singapore.

With an uncertain economic backdrop and increased supply coming in 2024, as well as higher rent base, we expect future rental growth to slow, in particular for segments that are seeing higher supply.

Nonetheless, the logistics landscape remains dynamic as occupiers aim to scale up their logistics capabilities. CBRE Research observed that several upcoming logistics assets, such as Commonwealth Kokubu Logistics’s facility at 8 Jalan Besut, as well as Maersk’s World Gateway 2 facility will implement automation technologies such Automated Storage & Retrieval Systems (AS/RS). Therefore, landlords that actively engage their tenants are better placed to understand occupier requirements and future proof their logistics portfolio.