Ravi Chandran
Despite the impressive growth of e-commerce industry in recent years, it did not always result in a corresponding increase in demand for warehouse space, said a recent report by ZACD. ZACD, a regional real estate investments advisory, said this is because in the e-commerce industry, the majority of the companies do not require significant warehouse space.
The real estate services company said furthermore, some of the items bought through e-commerce are shipped directly from the foreign vendors to the Singapore customers and would only occupy local warehouse storage briefly.
ZACD acknowledged that the demand for warehouses does not depend solely on e-commerce, and that there are many other industries that utilize warehouse space in Singapore.
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In examining the warehouse space sector over the past 20 years, the ZACD research said that the total warehouse space stock has doubled from 4.9 million sqm in 1998 to over 10.7 million sqm in 2018. The stock of warehouses increased at the fastest rate from 2013 to 2017, when there were plans for Singapore to be a regional logistics hub.
Mr Nicholas Mak, ZACD’s Head of Research & Consultancy, said, “In 2017, a record-breaking 963,000 sqm of new supply entered the market. The demand for warehouse space was also expanding in the past seven years. From 2014 to 2017, the new demand or net absorption of warehouse space, which averaged 568,000 sqm annually, was especially robust compared to the previous four years of 2010 to 2013, when 209,700 sqm of warehouse space was absorbed annually on average.”
He added: “E-commerce in Singapore started to gain traction from 2013 onwards. It could have partly contributed to the increase in warehouse demand from 2014 to 2017. However, the property market was not always able to absorb the supply of new warehouse space in the past seven years. As a result, the overall warehouse occupancy rate has declined after reaching the peak of 94.7 per cent in 1Q 2012. In 2017, it fell to 89.1 per cent before it recovered modestly to 89.5 per cent the following year, partly due to the relatively low supply of new warehouse space completed in 2018.”
The ZACD research noted that although e-commerce in Singapore continued to be popular in 2018, the net absorption of warehouse space actually fell 66.4 per cent from 800,100 sqm in 2017 to 269,000 sqm in the following year. This, the report said, indicated that the demand for warehouse space corresponded more with new supply rather than e-commerce.
ZACD research said that this is further illustrated by the high correlation coefficient of 0.86 between new supply and new demand for warehouse space.
The research said that the growth in e-commerce does not necessarily lead to a corresponding increase in demand for warehouse space. Just as ecommerce and online shopping is expected to evolve over time, so would the use and types of warehouse space. Moving forward, ZACD said we could expect greater innovative use of new technology such as robotics and automation in the pursuit of greater productivity of warehouse space.
Mr Paul Ho, chief mortgage officer at iCompareLoan, commenting on the topic noted, “warehouse rents improved from the previous quarter and this is the first rental uptick in 16 quarters.”
He added, “one research noted that there has been significant improvement in demand for warehouse space compared to six months ago, but supply is expected to slow down over the rest of 2019. But warehouse vacancy rate remains high, so we should anticipate rents to remain soft for the rest of this year.”
Despite the property curbs introduced by the Government last year, Singapore is still an attractive commercial market for foreign investors. Although the market exuberance has been curbed to some extent with the property cooling measures introduced in 2018, Singapore as a property market investment destination still remains among the top – shoulder to shoulder – with other cities in the world like London, New York, Shanghai and Sydney.
“We have to be mindful that there is a lot of excess capital fluidity here and at 1.9 – 2 percent, Singapore has one of the lowest interest rates for home loans in the region,” Mr Ho said.
Mr Mak said in ZACD’s report, “it is assumed that the rise of the e-commerce industry would increase the demand for logistics properties or warehouses, (but) the growth in e-commerce does not necessarily lead to a corresponding increase in demand for warehouse space.”
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