Prolonged global uncertainties and tight domestic supply are hitting Singapore’s industrial real estate market, pulling down property investment deals in the sector by 4.9 percent in the second quarter to S$661.5 million ($472 million) while tempering leasing activity by a third, according to analysts.
The volume of industrial deals recorded in the past three months eased from the January to March tally of around S$695 million, with last quarter’s total posting a steeper drop of 30.2 percent when compared to the same period last year, based on Knight Frank’s Industrial Update report released on Thursday.
In a separate report from Colliers, the agency’s research head for Singapore, Catherine He attributed a dip in industrial transactions last quarter to a limited supply of large scale assets on the market, coupled with dampened business sentiment.
“The sector is not losing its attractiveness yet, however, investors are probably more cautious and selective in light of heightened risks and borrowing costs,” He told Mingtiandi on Monday, adding that the advisory firm expects total industrial transactions this year to not exceed S$2.6 billion, which would be roughly half the S$4.28 billion in investments recorded in the sector during 2021.
Industrial Market Takes Backseat
Data on industrial real estate deals compiled by Cushman & Wakefield – which includes corporate mergers – shows transactions in the sector grew by tenfold to S$1.3 billion last quarter from the previous quarter’s tally of around S$100 million largely due to completion of the ESR REIT and ARA LOGOS Logistics Trust merger, said the agency’s research head for Singapore Wong Xian Yang.
For the first half, industrial investments including mergers totaled S$1.4 billion, according to C&W’s tally, which was down 57 percent compared to the same period last year.
Wong also said that, as a portion of all investment transactions, industrial deals shrank to just seven percent of Singapore S$9.8 billion in total deals during the first half, compared to a 17 percent of the market during the same period last year.
“Industrial investment sales have taken a backseat,” he said, noting that the office segment is leading the investment market so far this year, however, Wong held out hope that the sector would rebound in the longer term.
“The demand-supply dynamics of the industrial market remain compelling, due to prevailing mega-trends such as e-commerce, digitalisation of businesses, and increased focus on life science, which will drive industrial demand and rents,” he added.
Knight Frank said multiple-user factories accounted for the bulk of industrial deals last quarter with prices averaging to S$439 per square foot, followed by single-user factory space and warehouses. Per sector, it said the food industry was the main demand driver for industrial space.
Muted Leasing Activity
In the leasing market, Knight Frank said rental transactions dropped to 2,077 deals in the second quarter, falling 34 percent from the preceding three months and down 39.6 percent compared to the same period last year.
That decline in leasing activity last quarter came despite the city-state recording a record 212 industrial rental transactions during April.
Colliers’ He said construction delays may have slowed the rental market as occupiers wait to sign leases later this year, when a large supply of industrial space is expected to enter the market. From a macroeconomic standpoint, she pointed to the impact of global uncertainties on the domestic leasing market.
“Increasing macroeconomic risks, inflationary pressures, increasing operational and borrowing costs have dampened business sentiments,” she said. “With the uncertain demand and operating environment, industrialists could be hesitant to commit to space until they get more certainty.”
Analysts See Investments Halved in 2022
Singapore industrial property investments for the year could range from S$2.1 billion to S$2.6 billion, according to He, a volume that would be 40-50 percent lower than the S$4.28 billion worth of deals seen last year when some major transaction helped drive the sector.
“Colliers expects industrial investments to slow down, unless portfolio level transactions come to market,” she said. “Sizeable, institutional grade industrial assets [like] ramp-up logistics assets, business parks will also remain tightly held.”
Last year’s total received a major boost from Blackstone teaming up with Soilbuild Group executive chairman Lim Chap Huat to privatise Soilbuild Business Space REIT for S$700 million.
Among the largest transactions so far in 2022 was Lian Beng Group’s purchase of an 11-storey industrial building at 31 Harrison Road last month for S$49.25 million, and in April, Apple was reported to have purchased the UE BizHub Central in Ang Mo Kio for S$55 million.
Despite a lacklustre second quarter, Daniel Ding, head of international real estate and industrial with the capital markets team at Knight Frank, said his firm still projects a “resilient” industrial property market in 2022 on ramped up stockpiling by companies and strong demand for electronics.
Ding estimates that prices and rentals of industrial assets will climb by three percent to five percent this year.
“Despite existing global and regional uncertainties, bright spots continue to highlight the industrial market,” he said. “The persisting chip shortage globally will continue to generate demand for electronics, and the transport engineering cluster will benefit from the increased demand for air travel as travel accelerates in many parts of the world.”
Cushman & Wakefield’s Wong expects industrial rents to continue climbing due to tight supply, “especially for prime logistics and city-fringe business parks, where vacancy rates remain very low.”
In a bid to boost supply in the market, JTC Corp, which regulates industrial development in the country, expanded its government land sale programme in the second half with seven industrial sites spanning 6.36 hectares (15.7 acres) eligible to be put up for tender from July to December.
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