The Singapore industrial sector has shown resilience in the real estate market, with prices and rents continuing to rise in the fourth quarter of 2023. Industrial prices increased by 0.6 per cent from the previous quarter, while rents saw a 1.7 per cent gain, marking a positive trend for 13 consecutive quarters.
Despite a slowdown in demand due to higher interest rates in 2023, rents remained strong, largely driven by undersupply, particularly in high-quality assets. However, different segments within the sector experienced varied performance due to unique dynamics.
Prime logistics and conventional warehouses performed well due to limited new supply and sustained demand from third-party logistics (3PL) players. Conversely, high-tech and conventional factories saw modest growth, influenced by a decline in tech demand and manufacturing exports.
Business parks remained a two-tier market, with city fringe properties showing resilient demand due to their proximity to the city and newer stock. Suburban business parks faced challenges, with older developments experiencing higher vacancy rates and steeper rental declines compared to newer properties.
Looking ahead to 2024, expectations are for Singapore’s economy to improve, interest rates to moderate, and a recovery in manufacturing growth to begin. As a result, industrial demand is expected to increase, leading to broad-based rental growth, particularly for quality assets.
While the growth prospects are promising, navigating the Singapore industrial market can be complex. Most industrial land is managed by JTC Corporation, requiring investors to understand and comply with its rules and regulations. For example, there are restrictions such as the Anchor Tenant Subletting Rule and Minimum Assignment Prohibition Period, which can increase leasing and investment risks.
Additionally, industrial land in Singapore typically has short lease tenures, which can deter foreign institutional investors. Extension of lease tenure is possible but subject to approval and dependent on long-term plans.
Despite these challenges, the Singapore industrial market offers various opportunities. Yields are driven by tenure, with shorter tenure land offering higher yields. Cold chain assets serving the food industry, prime logistics properties, and Singapore data centres are particularly attractive themes.
Retail investors interested in the industrial market can consider properties supported by transport infrastructure or close to MRT stations, ensuring good leasing demand. However, building specifications and due diligence are essential considerations.
Overall, while the Singapore industrial market presents challenges, it also offers diverse opportunities for investors to explore.
Brenda Ong, Head of Industrial and Logistics, Singapore, and Wong Xian Yang, Head of Research Singapore and South-east Asia, at Cushman & Wakefield contributed to this article.
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