Despite the subdued manufacturing outlook, the rental index for all industrial spaces rose marginally by 0.1 per cent from the first quarter to the second. This was supported mainly by rental gains in the single-user factory category, where the index rose 0.5 per cent over the preceding quarter.
This marked the first quarterly increase since the first quarter of 2015. However, due to the increased headwinds in the global economy and trade uncertainty, the temporary rebound is unlikely a sign that the industrial market is out of the woods.
Overall multiple-user factory rents also rose marginally, by 0.1 per cent quarter on quarter. The bulk of the rental gains materialised in the north, which saw increases of 0.5 per cent, and the north-east, up 0.4 per cent.
This could be due to the increased demand for food factories in these regions, which account for 40 per cent of the total number of food establishments in Singapore. More players in food and beverage are starting to explore a more costeffective centralised industrial food facility by tapping lower rents.
Leasing demand seems to be propped up by the multiple-user factory category, which saw a net absorption of 67,000 sq m, although about 45,000 sq m was taken off the market in the same quarter. If this space had not been taken out, it would have resulted in a higher multiple-user factory absorption of up to 112,000 sq m. This has led to a reduction of vacancy rates from 13.7 per cent to 12.8 per cent.
There is approximately 946,000 sq m of all industrial stock in the pipeline for this half of the year, of which 77 per cent or 729,000 sq m is committed to single-users.
As single-user factories tend to be occupied by owners, this could help ease the downward pressure on rents and occupancy should the economy continue to deteriorate.
The warehouse market saw muted net absorption of 18,000 sq m, significantly lower than the net supply of 71,000 sq m. Business parks had a marginal net absorption of 9,000 sq m on the back of a slight decrease in the net supply of 1,000 sq m.
The muted demand could be an indication that trade-related headwinds continue to weigh on investment decisions and expansion plans, resulting in a sharp slowdown in economic activities on the whole.
On the bright side, a number of global firms are still pouring investments into new facilities here.
Corteva Agriscience opened its Asia-Pacific headquarters at Biopolis in May. It will conduct R&D into maximising crop yields in sustainable ways. American medtech firm PerkinElmer launched its life science lab at JTC MedTech Hub on May 2 to manufacture detection and analytical instruments. German conglomerate Thyssenkrupp plans to set up a tech centre this year to unlock the potential of 3D printing solutions in industries.
Dark clouds are looming over the industrial sector. Singapore’s overall economy grew at a sluggish pace of 1.1 per cent year on year in the first quarter, marking two consecutive quarters of economic growth falling below 2 per cent.
This was due to a 0.4 per cent contraction of the manufacturing sector. The June manufacturing PMI further decreased by 0.3 to 49.6, after first falling into contractionary territory in May.
Business confidence was impacted by the escalation of the US-China trade war and growing concerns over an impending US recession due to the inverted yield curve.
Economists have raised the possibility of Singapore slipping into recession next year if macro-conditions continue to deteriorate.
Industrial rents are expected to remain flat for the second half of this year and moderate in 2020 if the recession scenario materialises.
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