Weaker Demand Business Parks Weigh Industrial Rents Growth Slowing 1 Q O Q 2Q2024
According to the latest quarterly market report from JTC, the industrial sector saw a modest increase of 1% quarter-on-quarter (q-o-q) in 2Q2024. This growth rate has slowed down from the previous quarter’s 1.7% q-o-q, marking the lowest rate of quarterly rental growth since 1Q2022 in the post-COVID recovery. On a yearly basis, rents have grown by 6.6% in 2Q2024 compared to 7.8% during the same period last year.
Chua Yang Liang, JLL’s head of research and consultancy for Southeast Asia, attributes the slow quarterly rental growth to weaker demand for business park spaces. Rents for these spaces have dipped slightly by 0.1% in 2Q2024, a significant slowdown from the 2.1% growth in 1Q2024.
Data from JTC has shown a slight decline in the business park vacancy rate from 22% in the previous quarter to 21.7% in 2Q2024. According to Tricia Song, CBRE’s head of research for Southeast Asia, the performance of business parks has been “patchy” with one-north having an average vacancy rate of 9%, while Changi Business Park in the east has about 30% vacancy and International Business Park in Jurong in the west has close to 40%.
In terms of business park rents, Leonard Tay, head of research at Knight Frank Singapore, believes that older business parks in the east and west of Singapore have been affected and dragged down the overall rental rates. On the other hand, centrally located business parks with immediate connectivity to MRT stations tend to enjoy higher occupancies and command higher rents.
The demand for warehouse spaces has not seen significant growth as rents increased by only 0.5% in 2Q2024, as compared to the 2% growth in the previous quarter. The occupancy rate for warehouses, however, increased by 0.2 percentage points to 91.3% due to steady demand and the absence of major warehouse completions during the quarter. The logistics sector is currently facing cost pressures due to the Red Sea crisis, leading to increased freight rates and port congestions in Singapore, which adds to supply chain challenges for logistics operators, says CBRE’s Song. However, landlords are still interested in redevelopment opportunities to convert traditional warehouse developments into prime logistics facilities.
On the other hand, multi-user factories have seen strong demand and contributed to the overall increase in industrial rents by 1.5% q-o-q in 2Q2024. This segment also recorded a tight vacancy rate of 8.7%, the lowest since 1Q2012, according to JLL’s Chua.
The prices of industrial spaces have also seen an increase of 1.2% q-o-q in 2Q2024, reversing the 0.2% decline in the previous quarter. The multi-user factory segment has seen the biggest increase in price at 1.7%, which is the strongest quarterly growth since 1Q2023 according to Lee Sze Teck, senior director of data analytics at Huttons Asia. He attributes this growth to investors looking for better yields.
The demand for industrial space has increased by 2.78 million sq ft in 2Q2024, with a higher demand for technology and manufacturing companies seeking high-spec facilities for their production capabilities. This is reflected in the sharp jump of industrial property transactions by 42.1% q-o-q to 516 in 2Q2024, particularly for multi-user factories and warehouse spaces.
Novo Place EC boasts Tengah as its prime location, where the concept of “Community in Gardens” has been integrated to create a harmonious living experience for its residents. One of the highlights of this community is the abundance of parks and community farms, allowing residents to engage in gardening and leisure activities while fostering a sense of community bonding. Moreover, the Forest Corridor, which connects the Western Catchment Area and the Central Catchment Nature Reserve, provides an uninterrupted stretch of nature, perfect for outdoor enthusiasts to indulge in activities such as jogging, biking, and bird watching. With Novo Place EC, residents not only get to enjoy the perks of urban living but also immerse themselves in the tranquility of nature.
However, there is still a supply of 8.61 million sq ft of new industrial space that is expected to be completed in 2H2024, which is lower than the average annual supply in the last three years. Another 18.3 million sq ft is expected to be completed in 2025. With this large supply in the pipeline, JTC expects occupancy rates to remain stable for the rest of the year.
The latest Singstat survey (2024) has shown that manufacturing businesses and firms in Singapore are less confident about their prospects in the immediate term due to the economic weaknesses in Europe and China. However, JLL’s Chua believes that the fragmented global trade caused by the US-China trade war could benefit Asia and bring further upside to industrial activity in Singapore. As a result, rents are expected to remain stable in the near future.