Industrial prices and rents fell for fifth consecutive quarter as vacancy rates spike

By Esther Hoon

/ The Edge Property |

October 27, 2016 5:16 PM SGT

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Outlook for industrial properties remains grim as prices, rents and occupancy rate were stuck in reverse gear for the fifth consecutive quarter. Overall prices and rents softened by 1.7% and 2% q-o-q respectively in 3Q2016, while occupancy rate inched down by 0.3 percentage points to 89.1%. Compared to 3Q2015, prices, rents and occupancy rate fell by 7.8%, 7.3% and 1.7% in 3Q2016. This brings the decline in industrial prices and rents to 6.4% and 6.3% respectively this year.

According to Christine Li, Director and Head of Research Singapore at Cushman & Wakefield, the sluggish industrial property sector can be attributed to the slowdown in the investment demand in industrial properties on the back of cooling measures and high vacancy rates amongst many completed strata-titled industrial properties.

“The recent improvement in the transaction volume in the residential market also channeled the liquidity away from the industrial market. The industrialists on the other hand, are also taking a wait-and-see attitude after taking into consideration the prolonged slow economic growth at least until the end of 2017 going by the official GDP estimates, coupled with the uncertainties surrounding the global and regional economic recovery,” says Li.

Business parks were the most resilient, with rents dipping by a marginal 0.2% q-o-q in 3Q2016. Vacancy rate, on the other hand, fell by 0.1 percentage point q-o-q to 18.9% in the quarter. “Business park absorption has been healthy due to demand from tenants in the tech and pharmaceutical sectors, with the recently completed Mapletree Business City II achieving an occupancy rate of 60%.” Li reckons.

“While the recovery of both the price and rental of industrial sector is still not on the card, as the challenging macroeconomic environment persists in the near term. A recovery of the industrial sector in the medium-term, however could lead to a shortage of business park space, given the much depleted supply pipeline in 2017 and beyond.” adds Li.

Warehouse sector was the worst hit. Tay Huey Ying, Head of Research Singapore at JLL pointed out that rents has plunged by 4.4% q-o-q, the second steepest fall since the onset of rent decline for warehouse in 1Q2014. “This steep decline in rents can be attributed to the weak global trading conditions that has weighed down demand for warehouse space, leading to the vacancy rate of warehouse space staying above the pressure point of 10% for the second consecutive quarter. Some 10.9 % of warehouse space was vacant as of 3Q2016,” Tay notes.

Despite the lackluster performance, about 3.0 million sq m of industrial space, including around 720,000 sq m of multiple-user factory space, is expected to come on stream from now till end of 2017. This is higher than the annual supply and demand in the past three years which averaged 1.9 million sq m and 1.2 million sq m respectively. On the other hand, JTC expects the influx in supply to further suppress prices and rents, resulting in reduced business cost for industrialist.

“By now, warehouse rents have corrected by 13.5% since peaking in 4Q2013. According to JTC, an estimated 901,000 sqm gross floor area of warehouse space is expected to come on stream in 2017. If these materialize, 2017 will set the record as the year with the highest ever new warehouse completion.” Tay reckons. “Given that global trading conditions is expected to stay lacklustre in the months ahead, demand is foreseen to continue to lag behind supply, forcing vacancy rate to edge further beyond the pressure point. Warehouse rents can be expected to stay under the weather for several more quarters,” she adds.

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