The overall industrial property market continued to rebound in the second quarter of 2021
Along with Singapore’s economic recovery, rents and prices of the overall industrial property market continued to rebound in Q2 2021 by 0.6% QOQ and 1.8% QOQ, respectively. Growth was seen in both rents and prices across all segments except for Business Park rents which remained unchanged. Multi-user factory continued to the best performing sector, showing strong growth in rents, prices and occupancy. Occupancy edged up by 1 ppt to 90.1%, as improvements in the Multi-user factory segment more than offset declines in Business Park and Warehouse on the back of higher supply.
Commenting on the overall industrial property market performance, Ms Shirley Wong, Senior Associate Director of Research for Singapore at Colliers, said: “We expect the overall Singapore industrial market to stabilise and recover in 2021, with some segments performing better.”
“In our view, warehouses could benefit from the acceleration of e-commerce driving demand for logistics services, while demand for data centres and high-specs space could be driven by the 5G rollout and strong growth in the Technology sector. On the other hand, Single-user factories could be more lacklustre relatively with higher supply completions in 2021.”Ms Shirley Wong
Rents and occupancy rate
The All-Industrial rental index continued its strength in Q2 2021 with another 0.6% QOQ growth after Q1 2021’s 0.6% QOQ. This brings H1 2021 rental growth to 1.1%. Rents in Q2 2021 was once again driven by the Multi-user factory, which increased by 1.0% QOQ. Currently, the All-Industrial rental index level is 14.0% below the peak in Q2 2014.
Overall occupancy improved marginally by 0.1 ppt to 90.1% in Q2 2021 from 90.0% in Q1 2021, attributed to the Multi-user factory segment, which saw an improvement in occupancy by +0.7 ppts amid rising demand. The Single-user factory saw no change in occupancy, while Warehouse and Business Parks saw occupancy declines by 0.1-0.2 ppts. Notably, net supply for the Single-user factory, Business Parks and Warehouses were significantly higher in Q2 2021 as compared to Q1 2021.
The Multi-user factory segment continued to outperform, with Q2 2021 rents increasing 1.0% QOQ (Q1 2021: 0.8% QOQ) driven by strong net demand of 1.3 million sq ft. Rents for all planning regions showed growth except for the North region (flat QOQ), led by the West (1.4% QOQ) and East (1.3% QOQ) regions. Occupancy for the Multi-user factory segment also improved by 0.7 ppts to 89.7%. Performance in the Single-user factory segment was more paltry in comparison, as net supply saw a sudden spike in Q2 2021 to 1.26 million sq ft, compared to Q1 2021’s 118,000 sq ft. Among others, 1 Lok Yang Way was granted TOP (Temporary Occupation Permit) in Q2 2021 for 44,380 sqm GFA, and 11 Loyang Close was granted TOP for 32,050 sqm. Single-user factory rents grew 0.1% QOQ in Q2 2021 (Q1 2021: 0.2% QOQ), while occupancy stayed flat at 90.9%.
Business park rents remain unchanged in Q2 2021 (Q1 2021: 0.1% QOQ), the lowest among all segments as it had been the most resilient segment in 2020 during COVID-19. Occupancy, however, slid 0.2 ppts to 84.8%, on the back of higher net supply (Q2 2021: 366,000 sq ft, Q1 2021: 108,000 sq ft). Notably, Razer SEA HQ at One-north Crescent was granted TOP for 16,460 sqm GFA.
Warehouse rents rose 0.2% QOQ in Q2 2021 after climbing 0.5% QOQ in Q1 2021. Despite significantly higher net demand of 1.5 million sq ft (Q1 2021: 635,000 sq ft), the surge in net supply to 1.8 million sq ft (Q1 2021: 743,000 sq ft) resulted in a slightly lower occupancy of 89.7% (-0.1 ppt QOQ). Landlords could be prioritising rents over occupancy amid an economic recovery. Projects which were granted TOP included JTC Logistics Hub @ Gul, which added 86,290 sqm GFA, additions/alterations to Logos Tuas Logistics Hub, which added 80,130 sqm, and Cogent Jurong Island Logistics Hub, which added 54,450 sqm GFA.
The All-Industrial price index gained further momentum and rose 1.8%% QOQ in Q2 2021 (Q1 2021: 0.9% QOQ). This brings H1 2021 price growth to 2.7%. Both Single-user factory and Multi-user factory segments did well, increasing by 1.9% QOQ and 1.8% QOQ, respectively. All regions saw improvements in prices, ranging from 1.5%-2.1% QOQ, with Other Regions leading and West Region seeing a 2.0% QOQ growth.
While delays in completion continued to persist, new completions started to pick up in Q2 2021, as the total available stock rose by 374,000 sqm, compared to Q1 2021’s 131,000 sqm. According to JTC, this is the largest quarterly increase since 2017. As of end-June 2021, around 1.7 million sqm GFA of new industrial space is expected to be completed in H2 2021, of which 46% will be in Single-user factory, 31% in Multi-user factory, and the remaining 22% in Warehouse and Business park space.
Based on advanced estimates by the MTI, Q2 2021 GDP jumped 14.3% YOY due to favourable base effects given that the economy contracted a record 13.3% YOY due to the “circuit breaker” from 7 April to 1 June 2020, although, on a QOQ seasonally-adjusted basis, the economy contracted 2.0% in the presence of Phase 2 (Heightened Alert).
Manufacturing continued to do well in Q2 2021, expanding by 18.5% YOY and contracted 1.8% QOQ seasonally adjusted (Q1 2021: 11.3% YOY, 11.4% QOQ SA), with growth supported by output expansions in all clusters except for the biomedical manufacturing cluster. Meanwhile, Construction surged 98.8% YOY and contracted 11.0% QOQ seasonally adjusted (Q1 2021: -23.1% YOY, 4.5% QOQ SA). Service Producing Industries continued to lag in the recovery sequentially (Q2 2021: 9.8% YOY, -1.0% QOQ SA).
The latest GDP advance estimates bring H1 2021 economic growth to 7.4% YOY, higher than Singapore’s official growth outlook, which is currently at 4% to 6%. This leaves some buffer for a potentially weaker than previously expected Q3 2021, given the reversion to Phase 2 (Heightened Alert).
Consistent with Colliers’ earlier findings in the “Resilience and Rebound Ranking” report, the overall industrial property market continues to lead in recovery as compared to other real estate sectors. In particular, business parks, logistics spaces and data centres benefit most from increased R&D, e-commerce adoption, as well as increased technology adoption and 5G rollout, respectively.
Ms Wong said, “Among the segments, we are relatively more optimistic on the outlook of warehouse rents, as warehouses are key beneficiaries of structural e-commerce growth accelerated by the pandemic.”
“Online sales as a proportion of total retail sales grew to 13.7% in May (average 11.4% Jan-May 2021) from an average of 5.9% in 2019 prior to the pandemic (peak at 26.3% in May 2020). We believe e-commerce will be a long term driver for logistics space and expect warehouse rents to grow 1.3% in 2021 and at a CAGR of 1.0% from 2021-2025 despite ample stock.
Supported by growth in the Technology sector, increased R&D activities, and a recovery in business confidence, we expect rents of business parks and high-spec space to recover 0.8% in 2021. High-spec space and business parks which are relatively new and well-located at city fringe areas, are likely to have more resilient demand due to their premium specifications, connectivity and limited supply.
For factories, we expect demand to recover with economic growth. That said, we note that factory supply over H2 2021 is expected to be significant at 1.4 million sqm GFA (60% from Single-user factory), versus the 10-year historical annual average supply of around 0.9 million sqm. However, any further delays in supply completions could provide some relief and potential upside to our forecast of 0.7% rental growth in 2021.”Ms Wong