Moderation in industrial rent and price growth in 4Q23

Singapore’s industrial property market could be heading for slowing growth if the slowing JTC industrial rent and price increases for 4Q23 extend into 2024. 

JTC’s statistics released today showed that except for the multiple-user factory segment, the rent and price indices for all other categories of industrial properties tracked by JTC rose at a slower pace on a q-o-q basis in 4Q23 compared to 3Q23. In fact, the 1.7% q-o-q rise in the all-industrial property rent index was the slowest in six quarters, while the 0.6% q-o-q rise in the all-industrial property price index was the slowest in nine quarters. 

The deceleration in the all-industrial industrial property rent and price growth amid the turnaround in manufacturing activities could stem partially from industrialists and investors’ resistance to further rent and price hikes. Driven by supply crunch, and investors’ reallocation of capital towards higher yielding assets amid the elevated interest rate environment, Singapore’s industrial rent and prices have soared by a total of 18.9% and 19.1% since their bottoms in 3Q20, according to JTC’s statistics.

We expect demand for factories and warehouses to generally stay firm in 2024. The recovering manufacturing sector should underpin demand for factory space while the persisting supply chain disruption on the back of the ongoing geo-political tensions should lend support to demand for warehouse space.

Against this backdrop, there should continue to be upside for factory and warehouse rents and prices in 2024. However, rent growth could be tempered by the higher supply pipeline, which is estimated at around 1.4-1.6 million sqm (net floor area) in 2024, compared to the net space addition of 0.8 million sqm in 2023. Occupier resistance towards further rent hikes could also intensify given the high base. 

Amid expectations of more modest rent growth and with interest rates foreseen to still stay elevated, this could also contribute to a more modest pace of price growth for factories and warehouses in 2024.