Industrial rents up 0.3% in 3Q2024 amid weaker demand; slowest growth since 4Q2021

The JTC All Industrial Rental Index increased for the 16th consecutive quarter in 3Q2024. However, momentum eased to a 0.3% q-o-q growth from the previous increase of 1.0% q-o-q in 2Q2024, notes Tricia Song, CBRE head of research for Southeast Asia. Although the JTC All Industrial Rental Index has risen by 22.5% since the trough in 3Q2020, the current quarter marks the first time since 2Q2020 that rental momentum has moderated across all market segments, notes Song. Overall industrial rents for the first three quarters of 2024 grew 3%, compared to 7.1% over the same period last year, says Brenda Ong, executive director of logistics & industrial, Cushman & Wakefield (C&W). Read also: Four adjoining B1 industrial strata units for sale at $4.5 mil Advertisement Advertisement In 3Q2024, rents for the multi-user factory segment increased the most – up 0.6% q-o-q, moderating from the 1.5% q-o-q growth in the previous quarter. Apart from the completion of One KA @ Macpherson, there were no other multi-user factory completions in 3Q2024. With net absorption continuing to be healthy, the occupancy rate inched up by 0.3 percentage points (ppt) to 91.6% -- its highest point since 4Q1996, notes CBRE. According to Song of CBRE, technology and manufacturing firms continue to be most active in seeking facilities with high specifications following through from the demand in 2Q2024.

Multi-user factory, warehouse demand still resilient

Demand for industrial space in 3Q2024 increased by 58,000 sq m (624,312 sq ft). Companies, however, remained cautious about expansion plans, says Lee Sze Teck, Huttons Asia head of research and data analytics. "The bulk of the demand in 3Q2024 came from the multi-user factory space," he adds. "Some of the demand came from North Asian companies using Singapore as a base to expand to other Southeast Asian countries." Warehouse rents rose by 0.1% in 3Q2024, as momentum eased from the 0.5% increase the previous quarter. There was only one major completion of a warehouse facility at 457 Tagore Industrial Avenue during the quarter. Occupancy rate declined by 0.2 ppt to 91.1%, marking the first negative net absorption since 1Q2023, notes CBRE. While the warehouse segment has still been relatively resilient, expansionary demand has moderated as e-commerce and 3PL (third-party logistics) occupiers are in consolidation mode, says CBRE’s Song. Landlords are actively exploring asset enhancement initiatives or redevelopment opportunities to convert general warehouse facilities into modern prime logistics assets.

Business park - vacancy rate above 21%

The business park segment continued to come under pressure as rents dipped by 0.2% q-o-q in 3Q2024, a slight acceleration from the 0.1% q-o-q decline in 2Q2024. While JTC's vacancy rate showed some improvement, falling from 21.7% in 2Q2024 to 21.2% in 3Q2024, it remains high compared to historical levels. Read also: Three Tuas South industrial properties for sale at $36 mil Advertisement Advertisement Vacancy rates have remained above 21% for the fourth consecutive quarter. That said, CBRE Research has observed that performance for the business park segment remains uneven, as factors such as micro-market, building age and specifications would impact rental and occupancy rates. Rents for the single-user factory segment decreased by 0.3% q-o-q, a reversal from the 1.3% q-o-q growth in 2Q2024. It marks the first rent decrease for the single-user factory segment since 3Q2020. Occupancy rate decreased by 0.3 ppt to 87.7% in 3Q2024, the lowest level on record for the segment as take-up was lower than new supply. During the quarter, major project completions were Sanofi's new 0.33 million sq ft production facility at 5 Tuas South Street 2 (partial TOP) and the remaining phase of Keppel DC Singapore 8 located at 82 Genting Lane.

Slowdown in transaction volume

Transaction volume for multi-user factory and warehouse space slowed by 22.4% in 3Q2024 to an estimated 427 units. Lee attributes the lower activity level to investors waiting for the interest rate cut before buying. He notes that almost 80% of the sales were less than $1.5 million, an attractive quantum for investors looking for an alternative investment to the residential market. The largest strata sale of a multi-user factory in 3Q 2024 was a 93,264 sq ft 30-year leasehold landed factory in Neythal Road for $6.33 million or $68 psf on land. A warehouse building at 301 Jalan Ahmad Ibrahim was sold for $46.2 million in Sep 2024. About 2.6 million sq ft of new industrial space (or around 0.5% of total stock) is scheduled for completion in 4Q2024. Of the upcoming supply, business park, single-user factory and warehouse account for 33%, 31% and 30% of pipeline space, respectively. The remainder is multi-user factory space, which accounts for 6%. Read also: Apac industrial investment down 34% q-o-q in 2Q2024: Savills Advertisement Advertisement Advanced estimates from the Ministry of Trade and Industry (MTI) showed that the Singapore economy continued to grow in 3Q2024. GDP expanded by 2.1% q-o-q after seasonal adjustments, much faster than the 0.4% q-o-q increase in 2Q2024. The manufacturing sector grew by 7.5% y-o-y, rebounding from the 1.1% y-o-y contraction in the previous quarter.

‘More rent-free periods’

While the leasing environment remains steady, occupiers remain cautious as they rein in costs, notes CBRE. "Most leasing transactions are focused on renewals and relocations," says Song. According to CBRE, landlords are becoming accommodative by offering more rent-free periods or fit-out incentives, especially for properties with outdated specifications. Selected occupiers seeking to right-size their real estate footprint are likely to relocate to higher-spec facilities with good connectivity to amenities, as talent retention remains crucial for employers. As for the prime logistics segment, rents have risen by 42.7% since the trough in 1Q2020, leading to greater resistance among occupiers. While rents grew by 1.1% in 1H2024, growth came to a halt in 3Q2024 as occupiers focused on consolidation amid inflationary pressures. Additionally, ongoing port congestion stemming from the Red Sea crisis is expected to persist until year-end, prompting occupiers to adopt a more measured approach in their expansion plans as they navigate supply chain challenges. Prime logistics supply is projected to peak in 2025, presenting an opportune time for occupiers to secure prime logistics space amidst less competitive market conditions compared to 2023.

Industrial prices up 0.5% q-o-q

Overall industrial prices grew by 0.5% q-o-q in 3Q2024, marking the second consecutive quarter of growth, moderating from the previous quarter's 1.2% q-o-q growth, observes C&W. For the first three quarters of 2024, overall industrial prices grew 1.5% YTD, compared to 4.5% growth over the same corresponding period last year. Industrial volumes (based on caveats lodged) fell by 21.3% q-o-q to 457 transactions in 3Q2024, although it grew 1.8% y-o-y and remains higher compared to the quarterly average in 2019 of 310 units. Demand remains strong for sustainable and modern developments, though many occupiers still face CapEx constraints, which has weighed on new leasing demand," says C&W's Ong. "Large occupiers remain cost conscious and prefer renewal than relocation". As such, transactions are predominantly for smaller spaces of 10,000 sq ft and below. The tenants have also been driven to "flight to quality reasons". Fitted units are also highly sought-after, as tenants can save on CapEx on renovation. Ask Buddy Compare price trend of Commercial vs Industrial properties Past Industrial rental transactions Price trend for industrial property sales Past Industrial sale transactions Listings for industrial property Compare price trend of Commercial vs Industrial properties Past Industrial rental transactions Price trend for industrial property sales Past Industrial sale transactions Listings for industrial property