SINGAPORE, 23 April 2020 --
Tricia Song (宋明蔚), Head of Research for Singapore at Colliers International:
Overall rents across Singapore industrial property market slipped by 0.1% quarter-on-quarter (QOQ) in the first quarter of 2020, led by multi-user factory which was down 0.4%, while warehouse rents rose 0.2% QOQ. Overall occupancy rate, however, held steady at 89.2%, unchanged QOQ. Meanwhile, prices of industrial properties saw a decline of 0.4% QOQ.
The changes in the rental and price indices for Q1 2020 were muted and have not fully captured the current ground sentiments and the full impact of the coronavirus outbreak (COVID-19), as the circuit breaker measures kicked in after the quarter, on 7 April. Many of these transactions could have been pre-committed pre-COVID-19.
This is in line with historical trends of the Global Financial Crisis in 2008, where impact on the industrial prices and rentals only started to show in the following quarter. With the rapidly evolving COVID-19 situation, we expect downward pressures on prices and rentals in the coming quarters.
For example, the food manufacturing industry was already hard hit with declining demand from the hospitality and food-services industries, supply chain disruptions since late January, and most recently, by the circuit breaker measures which had forced some of them to shut down manufacturing completely.
We are cautious about Singapore industrial market’s outlook in 2020, and forecast general industrial market to remain weak in 2020. The warehouse segment could be slightly more resilient given the rise in ecommerce driving demand for logistics services due to safe distancing and the circuit breaker measures
Rents and occupancy rate
The All-Industrial rental index saw the first decline after holding above the negative growth level for 5 consecutive quarters. Overall rents declined marginally by 0.1% QOQ. This put the All-Industrial rental index at 13.7% below the peak in Q2 2014 and marked the tenth consecutive quarter where rents remained rangebound, wavering between -0.1% and +0.1%.
The overall occupancy rate, however, remained unchanged QOQ in Q1 2020 at 89.2%, saved only by the multiple-user factory segment -- which saw its occupancy rate increasing by 0.4 ppt QOQ. Other segments saw a decline in occupancy levels, with warehouse dropping the most, by 0.5 ppt QOQ in Q1 2020.
The single-user factory segment saw both rents and occupancy levels declining in Q1 2020, as the manufacturing sector continued to contract and global demand slumped. Single-user factory rents dropped by 0.2% QOQ and occupancy dropped by 0.1% QOQ.
Similarly, rents for multiple-user factory segment dropped by 0.4% QOQ with decline witnessed across all planning regions in Singapore, except for the East Region which saw flat rent growth. Occupancy level for multiple-user factory, however, improved by 0.4 ppt QOQ to 87.9% as new supply during the quarter was modest at 196,000 sq ft (net) and new demand was 3.6 times higher at 704,000 sq ft (net).
After four consecutive quarters of rising, business park rents have flattened out as the global COVID-19 pandemic dampened business sentiment and leasing activities in business parks and high-spec spaces. Rents for business park remained unchanged QOQ in Q1 2020, while occupancy rates declined by 0.2 ppt QOQ to 86.0% as businesses paused expansion activities.
Warehouse was the only segment that saw rental increment in Q1 2020, with rents rising by 0.2% QOQ, possibly due to the surge in demand driven by e-commerce and delivery services during the “circuit breaker” period. Warehouse occupancy, however, deteriorated by 0.5 ppt QOQ to 87.5% as supply was relatively high at 522,000 sq ft (net) during Q1.
The All-Industrial price index slipped by 0.4% QOQ in Q1 2020, with decline witnessed in both single-user factory (-0.1% QOQ) and multiple-user factory (-0.6% QOQ) segments.
We note that the price index for multiple-user factory has not seen an increment for six consecutive quarters, with Q1 2020 seeing declines in prices across all planning regions, except for the West Region which saw flat growth.
The total industrial stock completed in Q1 2020 stood at 2.1 million sq ft (net), with 77% in factory. For the next three quarters, 19.1 million sq ft (net) of industrial space was originally projected to be completed, based on plans as of end March 2020. However, they could now be delayed. Of this 19.1 million sqft of space, 40% is in multiple-user factory, 37% in single-user factory, 15% in warehouse and 8% in business park.
The original plan would bring total new supply in full-year 2020 to 21.3 million sq ft (net), or 2.3 times higher than the 9.3 million sq ft (net) in 2019. The delay, however, could bring some reprieve to the landlords and industrialists.
Beyond 2020, JTC forecasts new supply across all industrial types to come off in 2021 to around 10.7 million sq ft (gross) before picking up again in 2022 at 15.0 million sq ft (gross).
We note that CleanTech Three in Jurong Innovation District was originally planned to complete in 2020. Business park supply could pick up again in 2023 when the first developments in Punggol Digital District become operational.
Warehouse new supply was set to peak in 2020 and start tapering off after 2022.
Based on advance estimates from the Ministry of Trade and Industry (MTI), Singapore’s Q1 GDP contracted by 2.2% YOY and 10.6% QOQ (seasonally adjusted annualised), the worst decline since the global financial crisis.
Oxford Economics, as of 21 April 2020, has downgraded Singapore’s 2020 GDP forecast to −5.1%, as the global COVID-19 pandemic and subsequently, the “circuit breaker” measures, are expected to drag Singapore’s economy into its first recession in two decades. MTI had earlier forecast Singapore’s 2020 growth to be in the range of −4% to −1%.
Given a sharp drop in external demand, Oxford Economics anticipates a double-digit fall in Singapore’s exports and imports in the coming months. Both the construction and manufacturing sectors are also expected to contract in the near terms due to the labor shortage amidst more stringent restrictions.
We anticipate that demand for general factory spaces could remain weak in the near term, as industrialists recalibrate their expansion plans and space requirements amidst a bleak manufacturing outlook.
The demand disruption could be tempered by delays in what would have been a sizable new supply for the remaining of 2020. Hence, we expect that overall factory rent will likely remain subdued with a slight decline by the end of 2020, especially for older spaces in remote locations.
The surge in local demand for delivery services, e-commerce, data broadband and various online activities during the “circuit breaker” period will provide a boost in demand for logistics spaces and data centres. With vacancy still elevated at 15.0%, rents for warehouses are likely to be kept at bay. Overall, we forecast warehouse rents to stay flat for this year 2020, stabilising in 2021-2022 before recovering from 2023 onwards as supply diminishes.
In the near term, we forecast the rents in business park and high-spec segments could slow down due to disruptions caused by the ongoing COVID-19 pandemic in Singapore. However, given the relative resilience of the Technology, Media and Telecommunications (TMT) sector during this COVID-19 pandemic, we would expect rents for business park and hi-specs segment to rise by 0.5% – 1% YOY by the end of 2020, when business confidence returns. Centrally-located business parks and high-spec industrial spaces should enjoy healthy demand in the longer-term, due to their premium space and limited supply.
Beyond that, COVID-19 could indeed bring about changes in the global manufacturing landscape as governments around the world consider onshore manufacturing of certain strategic products.