Industrial Real Estate (Singapore)

Group Research07 mar 2019
Photo Credit - AFP

Overall Outlook

We believe that the outlook for Singapore’s industrial sector will remain stable in the immediate term and had started to bottom out from 2018 onwards on the back of abating supply risk. Rental rates have reversed from the downtrend in 2018 to a positive rental status going forward, where rates are expected to increase by up to 2.0-3.0%. Vacancy rates are expected to follow suit to tighten from the 11% in 2018 and remain at this level.

Manufacturing Sector expanded in December 2018. Singapore’s Manufacturing sector has been showing signs of activity rebound recently with the country’s Purchasing Managers’ Index (PMI) continuing to record an expansion in December 2018. However, the December reading declined 0.4 points from the previous month to post a slower expansion at 51.1, indicating more robust business activities going forward and the 28th consecutive month of expansion in factory activity. The Singapore Institute of Purchasing and Materials Management (SIPMM), which compiles the PMI, said the decrease in the latest reading was due to a reduced growth in new orders, new exports, factory output, inventory and employment levels.

However, the electronics sector recorded a decrease of 0.1 point from November 2018 to post a contracted reading of 49.8 – its second straight month of contraction. According to SPIMM, this was due to first-time contraction in factory output and reduced rates of expansion in new exports, new orders, inventory and employment levels.


Demand surpassed supply in 4Q18. As of fourth quarter 2018, take-up for industrial space was higher than the increase in supply, with a net increase in occupied space of close to 0.8 million square feet (sqft). Further, the majority of this space is expected to be taken up progressively by end-user occupiers in the coming quarters.
We believe that demand for space comes on the back of consolidation of operations to achieve operational efficiency. Hence, we expect the increased take-up in the single-user factory space to be at the expense of higher vacancy rates emerging from existing multi-user factory space, which some of the end-users are expected to vacate. However, take-up should start to pick up in 2019 if the expansion in manufacturing activities continues.


Year of stabilisation in 2018. The industrial market is at the tail end of a period with a spike in supply completions starting from 2014, up until 2017. As such, landlords are typically still facing an increasingly competitive operating environment. However, supply dropped in 2018, which we can consider to be a year of stabilisation, as the hike in new supply in 2017 was absorbed to some extent. We expect a controlled increase in new supply going forward.
Based on the latest statistics from JTC Corporation (JTC), a total of 4.8 million square metres (sqm) – equivalent to 51.8 million sqft – of new industrial space is either under construction or in planning and projected to be completed over the next five years, from 2019 to 2022 and beyond. Of this, more than 30% will be completed and operational by the end of 2019.
Among industrial types, single-user factory spaces will see close to a 2.2 million sqm increase in new supply representing a c.9% rise, while multi-user factory spaces will see close to a 1.7 million sqm of new supply (c.15% increase). This is followed by warehouse spaces at c.6% (or close to 0.6 million sqm). The business park space will add another 0.3 million sqm (up c.12%). However, most of the space is precommitted and thus not an issue for existing landlords.


Industrial sector’s overall vacancy rates to increase going forward. Taking into account assumed precommitment rates and projected new demand, coupled with with an increasing supply outlook, the average vacancy rate is now 10.7% (as of 4Q18). Further, we expect vacancy rates to increase to 11.7% in 2019F and 12.1% in 2020F. However, we can expect a more controlled vacancy rate in the upcoming years as new supply gets absorbed.
As some of these new supply completions were absorbed in 2018, spot rentals faced a growth of 3% on average for business park space, whereas factory space rental remained constant, with the exception of warehouse which faced a marginal drop of 1%. However, we expect rentals across most sectors (industrial, warehouse and business parks) to start turning up from 2019F onwards.

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DBS Bank Ltd
12 Marina Boulevard, Marina Bay Financial Centre Tower 3
Singapore 018982
Tel. 65-6878 8888
Company Regn. No. 196800306E