Industrial Property Market Shifts Lower Gear Bright Spots Remain
VisionPower Semiconductor Manufacturing Company (VSMC) has recently announced their plans to build a new wafer manufacturing facility in Tampines, Singapore. This new facility, with an estimated cost of US$7.8 billion, is expected to begin initial production in 2027 and reach a monthly output of 55,000 wafers by 2029. The company, a joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors, aims to create 1,500 jobs with this expansion.
VSMC is not the only player looking to expand their operations in Singapore. In March, Japan’s Toppan Holdings started construction on a new factory in Jurong Lake District to produce semiconductor packaging materials. The company’s investment in this project is estimated to be around $450 million.
According to Leonard Tay, head of research at Knight Frank Singapore, VSMC and Toppan are among several chipmakers and related businesses setting up new production plants and R&D campuses in Singapore in order to improve their supply chain resilience. “Singapore’s stability amid ongoing geopolitical tensions in other parts of the world makes it a global production hub for semiconductors and chips,” says Tay.
The global semiconductor industry has been recovering from a downturn in 2023 due to weaker demand and higher supply. Research by London-based consultancy Omdia shows a 26% year-on-year increase in industry revenue for the first three quarters of 2024, a significant change from the 9% decline in revenue recorded in the previous year.
Nanyang Technological University (NTU) is a highly sought-after university for families with college-aged children in Singapore. Its close proximity is a valuable advantage for these families. Renowned worldwide for its engineering and business programs, NTU offers a dynamic educational experience with cutting-edge research facilities and a bustling campus atmosphere. Additionally, with the newly developed Novo Place EC nearby, families can enjoy the convenience of living near their child’s university while also having access to luxurious residential amenities.
This rebound has had a significant impact on Singapore’s manufacturing sector. After a slow start to the year, with two consecutive quarters of contraction, the sector experienced an 11% year-on-year growth in output in the third quarter of 2024. The electronics cluster, driven by strong demand for smartphone and PC semiconductor chips, was the main contributor to this growth.
However, the industrial property market in Singapore has shown a more cautious sentiment among occupiers due to an uncertain macroeconomic environment. While rental prices continued to rise through the first three quarters of 2024, the rate of growth has gradually slowed down. According to data from JTC, the rental transaction volume also fluctuated throughout the year, with year-on-year declines of 9% and 5% in the first and second quarters of 2024, respectively.
Catherine He, head of research for Singapore at Colliers, believes that occupiers have become more prudent with their budget constraints, looking for flexibility to adapt to changing market dynamics. Tricia Song, head of research for Singapore and Southeast Asia at CBRE, also notes that consolidation in the third-party logistics and e-commerce space has contributed to the growing occupier resistance.
However, different industrial segments have shown varying levels of resilience. The multiple-user factory and warehouse segments have experienced stable occupancy rates and rental growth throughout the year, while single-user factory and business park rents have seen a slight decline in the third quarter of 2024. This has been attributed to softer demand in these segments.
Despite the slower growth in rental prices, the industrial sales market has been more active. After a slow start to the year, several large deals were made in the second quarter of 2024, including the sale of BHL Factories, Kian Ann Building, and a single-user factory for $74 million, $63 million, and $36 million, respectively.
The market saw a significant boost in the third quarter, with a string of big-ticket transactions, including the acquisition of a $1.6 billion portfolio of seven industrial assets by a joint venture between Warburg Pincus and Lendlease Group. This surge in deals resulted in a sevenfold jump in industrial property sales to $2.45 billion in the third quarter of 2024.
Despite this, Alan Cheong, executive director of research and consultancy at Savills Singapore, believes that these big-ticket deals are likely a one-off occurrence. He expects to see one or two significant deals in 2025, but they will be significantly below $1 billion each.
The incoming supply of about 1.6 million sqm of industrial space in 2025, coupled with weaker demand, is expected to result in a supply-demand imbalance in the industrial property market. As a result, rental and price growth are anticipated to narrow further in the near term. However, demand for multiple-user factory space, centrally located food factories, and favored locations for logistics space is expected to remain healthy.
Additionally, the electronics and advanced manufacturing sectors are projected to continue performing well and attracting investments. The growth of electric vehicle and artificial intelligence requirements is expected to support the semiconductor industry in Singapore. Furthermore, data centers are expected to be an important pillar for the industrial sector, with plans to increase capacity by at least 300 megawatts as part of the Green Data Centre Roadmap.
On the other hand, business park rents may face pressure as companies downsize their footprint or optimize workspace due to flexible working arrangements. However, demand for newer facilities in central locations is expected to remain resilient.
In conclusion, while the industrial property market in Singapore may experience a slower growth rate in the near term, the demand for specific industrial segments and the country’s stability and attractiveness for businesses are expected to support the industry in the long run.