Commentary on JTC's Announcement on Q1 2024 Statistics

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

JTC All Industrial Rental Index increased by 1.7% q-o-q in Q1 2024, with momentum on par with the previous rise of 1.7% q-o-q in Q4 2023. This was the 14th consecutive quarter of rental increase. The JTC All Industrial Rental Index has also increased 20.9% since the trough in Q3 2020.

• Among the various market segments, rents for business parks and single-user factories increased the most by 2.1% q-o-q.
  o For the business park segment, this represents an acceleration from the prior increase of 0.3% q-o-q in Q4 2023. This is likely driven by selected deals in premium spaces. By micromarket, median rents in one-north increased the most on a q-o-q basis, by 16.3%. That said, CBRE Research observed that overall demand for business parks remained cautious. According to JTC data, vacancies have crept up steadily from a low of 14.4% in Q1 2022 to 22.0% in Q1 2024.
  o For the single-user factory segment, this was also an acceleration from the prior increase of 0.7% q-o-q in Q4 2023. The increase can be attributed to recent completions that brought up average rents.

• Rents for warehouses grew by 2.0% q-o-q, accelerating from the previous increase of 1.6% q-o-q in Q4 2023. However, occupancy rate for the quarter fell by 0.5 ppt to 91.1%, due to a stronger pace of completions which is the highest since Q1 2023. Despite the decrease in occupancy rate for warehouses, CBRE Research understands that demand for storage space in ramp-up developments with modern specifications have been resilient, as new projects such as 4 Benoi Crescent was fully committed upon completion in Feb 2024. While some logistics occupiers have started to show resistance to higher rents, they remain keen to pivot away from traditional warehouses. Landlords with prime logistics assets remain well positioned to capture demand from large-scale end-users such as 3PLs.

• As for the multi-user factory segment, rents rose by 1.3%, easing from last quarter’s increase of 2.3% q-o-q. In the absence of major facility completions during the quarter, occupancy rate remained flat at 90.5% as occupier activity was mainly driven by relocations and renewal deals.

• Prices dipped downwards for the first time since Q3 2020, with the All-Industrial Price index down 0.2% q-o-q. The decline was mostly caused by the single-user factory segment which saw a 1.0% q-o-q fall, while the multi-user factory segment actually saw a 0.5% q-o-q increase. While investors generally expect interest rates in come down by year-end, the uncertainty over the timing of these interest rate cuts could have dampened sentiment for some investors in Q1 2024. That said, yields for leasehold industrial assets remain attractive as they offer investors a positive carry.

• As at end-Mar 2024, about 17.4 mil sq. ft. of new industrial space (or around 3.0% of total stock) is scheduled for completion over the next three quarters of 2024. Of the upcoming supply, the single-user factory segment makes up 61%, while business park space accounts for 21%. The remainder of the pipeline comprises warehouses and multi-user factories at 14% and 4% respectively.

Outlook
• Based on advance estimates from the Ministry of Trade and Industry (MTI), Singapore’s economy continued its expansion in Q1 2024 as GDP rose by 0.1% q-o-q seasonally adjusted, as compared to the 1.2% q-o-q growth in Q4 2023. During the quarter, the manufacturing sector grew by 0.8% y-o-y, moderating from the 1.4% y-o-y increase in Q4 2023.

• While overall demand for industrial space and leasing activity has remained resilient, businesses continue to be cautious as they focus on operational efficiencies and cost control. Given the prevailing economic challenges and high-cost environment, overall business park rents are likely to be relatively subdued. That said, the business park market is increasingly bifurcated even within similar locations. While newer buildings with premium spaces could outperform, selected older buildings or those experiencing higher vacancies will have to focus on both attracting new tenants and retain existing tenants.

• Over the next three quarters of 2024, only two prime logistics assets are scheduled for completion. However, as these are single-user sites, most of the space are already pre-committed. Therefore, CBRE Research expects warehouse rents to be more resilient than the segments. Landlords with newer warehouses that have desired specifications will be in a better position to secure quality tenants with strong lease covenants.