CBRE Commentary on JTC's Announcement on Q4 2023 Statistics

By Tricia Song (宋明蔚), Head of Research, Southeast Asia, CBRE

Rents and Occupancy
• The JTC All Industrial Rental Index increased by 1.7% q-o-q in Q4 2023, as momentum eased from the previous increase of 2.0% q-o-q in Q3 2023. This was the 13th consecutive quarter of rental growth, bringing the full-year 2023 increase to 8.9%. This is an acceleration from 2022’s 6.9% increase, even though the macroeconomic backdrop was weak in 2023. The JTC All Industrial Rental Index has also risen 18.9% since the trough in Q3 2020. 

Multi-user Factories
• Among the various market segments, rents for multi-user factories rose the most by 2.3% q-o-q, accelerating from the prior increase of 2.0% q-o-q in Q3 2023. This brings full-year rental growth for multi-user factories to 10.7% in 2023, the highest full-year rental growth across all the industrial segments. It is also an acceleration from 2022's 8.3% full-year growth and a 23.2% increase from the trough in Q3 2020. 

• In Q4 2023, multi-user factory also saw the most substantial increase in occupancy as it improved by 0.8 ppt to 90.5%. It registered a 1.4 ppt increase for the entire year, which was the strongest across all industrial segments. CBRE Research believes this is due to flight to quality as take-up for newer factories with quality specifications remains healthy. 

Warehouses 
• Rents for warehouses grew by 1.6% q-o-q, moderating from the previous increase of 2.4% q-o-q in Q3 2023. Strong warehouse demand saw occupancy rates improve by 0.3 ppt to 91.6% in Q4 2023. This brings full-year warehouse rental growth to 8.5%, accelerating from 2022's 7.9% increase. Warehouse rents have also increased by 20.6% since the trough in Q3 2020. With no significant warehouse completions in Q4 2023, warehouse availability remains tight as manufacturers and Third-Party Logistics (3PL) firms remain keen to hold onto quality spaces. 

• Q4 2023 also marked the second consecutive quarter of negative net supply for warehouses. This suggests that landlords of older warehouses are undertaking redevelopments to capitalize on rising warehouse rentals amidst tight supply. 

Prices 
• Prices continued to inch upwards but at a slower clip than rents in Q4 2023, with the All-Industrial Price index up 0.6% q-o-q. This is the sixth consecutive quarter of prices increasing slower than rents. For the full year, prices increased by 5.1%, moderating from 2022's price increase of 7.5%. Although the general sentiment among investors is that interest rates have peaked and will likely come down in 2024, current financing costs are still challenging for some investors. That said, yields for leasehold industrial assets remain attractive as they offer investors a positive carry. 

Future supply in 2024
• While there is around 22.0 million sq. ft. of new industrial space (or around 3.9% of total stock) to be completed in 2024, the single-user factory segment makes up 57%, while warehouse space accounts for 19%. The remainder of the pipeline comprises business parks and multi-user factories at 13% and 11%, respectively. 

Outlook 
• Even though contractions in manufacturing output and exports in 2023 negatively impacted Singapore's economy, demand for industrial space remained strong as both rents and prices increased for the full year. 

• While economic uncertainties could persist in the near term, some green shoots have emerged in Q4 2023, as the manufacturing sector grew 3.2% y-o-y in Q4 2023, after three-quarters of contraction, according to advanced GDP estimates on 2 Jan 2024. With the anticipated recovery in global electronics demand for 2024, manufacturing is expected to rebound, supporting demand for industrial space across both the hi-tech and prime logistics segments. 

• CBRE Research observed that inquiries from major life sciences firms remain strong as they seek to expand their presence in Singapore. While the hi-tech factory segment has an ample supply of good quality, the prime logistics segment needs more quality space. Nonetheless, after a record year of rent growth of 14.2% in 2023, prime logistics rental growth should moderate in 2024 on a higher base and as some resistance from tenants comes in.