EARLY SIGNS OF IMPROVEMENT FOLLOWING PROLONGED DECLINE
Singapore’s manufacturing sector was encumbered by the long-drawn Sino-U.S. trade war and the trade dispute between Japan and Korea for most of 2019, which precipitated slowdowns in exports and manufacturing output (Figure 18). Sentiments were similarly weighed down, as demonstrated by PMI which remained in contraction territory for seven consecutive months (Figure 19).
Nascent signs of recovery were displayed in Q4 2019 across most trade indicators on the back of positive influences including the ‘phase one’ trade deal between U.S. and China as well as the expansionary Budget 2020, which helped to inject optimism into the market. However, trade outlook remains uncertain as market conditions continue to evolve.
RECOVERY POSSIBLY CURTAILED
In light of the COVID-19 outbreak which has emerged as a key downside risk to economic growth, CBRE Research is of the view that the impending recovery of the manufacturing sector may be prematurely curtailed. This is amplified by the fact that China is Singapore’s largest trade partner, accounting for S$137.31 bn or 13.4% of total merchandise trade in 2019.
The outbreak, which has weakened Chinese demand for imports, is expected to detrimentally affect Singapore as an exporter of raw materials, intermediate and finished goods to China. The electronics and semiconductor cluster is poised to take the brunt of the impact, with factory shutdowns in China likely to culminate in a spillover effect via the regional supply chain.
Moving forward, depending on the severity of the COVID-19 outbreak and the possibility of further unforeseen economic shocks, any recovery in the manufacturing sector is likely to face delays, thereby placing pressure on logistics players.
SUBDUED SUPPLY PIPELINE TO LEND SUPPORT
LIMITED WAREHOUSE SUPPLY, MAJORITY FOR OWNER-OCCUPANTS
The upcoming warehouse supply continues to taper off from the high supply delivery in the last 10-years. New supply per annum from 2020-2023 is estimated at 1.53 mil sq. ft., a significantly lower figure compared to the historical 10 year average of 4.42 mil sq. ft. from 2010-2019 (Figure 20).
As at Q4 2019, total warehouse supply from 2020-2023 stands at 6.14 mil sq. ft., with only three known upcoming multiple user projects, namely JTC Logistics Hub @ Gul (1.45 mil sq. ft.), Pandan Crescent Pte Ltd’s 4 Pandan Crescent (1.29 mil sq. ft.) and LOGOS SE Asia Pte Ltd’s 20 Tuas South Avenue 14 (1.07 mil sq. ft.).
With a regulated amount of speculative stock in the market, the subdued supply pipeline could lend some support to occupancy. In addition, this could provide respite for the market to absorb the leftover supply from previous years’ saturated levels over the next few years.
SIZEABLE AMOUNT OF VACANT STOCK REMAINS
Nonetheless, despite the low upcoming supply, warehouse vacancy rate as at Q4 2019 is noted to be 12.0%, which represents a sizeable amount of vacant stock of 14.22 mil sq. ft. in NFA. Majority of vacant stock of 8.52 mil sq. ft. or 59.9% is situated in the West region, where over half of islandwide warehouse stock is concentrated.
Further, vacancy rates have been on the rise since Q1 2019. While this trend may cease in the next four years due to the abated supply stream, vacancy is anticipated to hover around the region of 12.0% as majority of the existing vacant stock is likely to comprise older buildings with lower specifications.
FIGURE 20: FUTURE WAREHOUSE SUPPLY
RENTS TO BE RESILIENT
SUPPRESSED RENTAL MARKET
Owing to market uncertainties, CBRE Research forecasts prime logistics rents for 2020 to stay flat at $1.34 psf/mth (Figure 21). While the COVID-19 outbreak is expected to suppress rents for the year, the repercussions of the virus outbreak are likely to be partially cushioned by the limited supply pipeline.
In 2020, demand is expected to be driven by the third-party logistics, e-commerce and chemicals sectors, with continued tailwinds from the pharmaceutical sector. While the electronics sector used to be a key demand driver, the twin impact of the ongoing Sino-U.S. trade war and COVID-19 outbreak is expected to prolong its slowdown.
FIGURE 21: CBRE PRIME LOGISTICS RENTS
LOGISTICS MARKET REMAINS TWO-TIER
Moving forward, with the logistics market remaining two-tier in nature, more resilience is expected for buildings with higher specifications. As such, prime logistics rents are forecasted to remain resilient in the next few years, stabilising in 2020 and exhibiting growth thereafter.
In recent years, it was observed that landlords are increasingly opting for asset enhancement strategies to improve the quality of their portfolio buildings. With a substantial amount of vacant stock remaining, there will likely continue to be great pressure for landlords to redevelop their older assets so as to remain competitive amid vulnerable market conditions.