The upcoming supply of industrial space will largely be felt in Singapore’s western region, while the rest of the city-state will be under less pressure, according to a report from Credit Suisse.
In 2016, the supply of industrial premises in the western region is expected to rise by 9.8 percent compared to an increase of just 1.7 to 2.6 percent in the north, east, and central regions, the report revealed.
“We believe the central region is likely to be under the least pressure given that a third of its incoming supply in 2016 is coming from Sin Ming Autocity (542k sq ft), which is catering to the relocation of over 150 motor workshops from the Sin Ming Industrial Estate that will be redeveloped,” the Swiss financial institution said.
In addition, the new supply in the central region is forecasted to moderate significantly after 2016 to only 150,000 sq ft to 160,000 sq ft per annum in 2017 to 2018. There could be risk from additional IGLS site launches. But currently the sites on the 1H 2016 Confirmed and Reserved List are located in Tampines in the East, Woodlands in the North, and Tuas in the West.
In terms of industrial property type, the incoming supply in 2016 will largely comprise factory space of about 10.6 million sq ft. Of this, 36 percent or 3.8 million sq ft will be multi-tenanted buildings, while 64 percent will consist of single-user assets.
The former’s supply is projected to remain at similar levels in 2017 at 3.9 million sq ft, or 3.4 percent of the multi-user stock. This will be concentrated in the North and Western regions, mainly from the development of Far Easts’ three land plots on Gambas Avenue, while JTC space in Tuas alone will add 1.3 million sq ft of space in the western region.
In the business park segment, although there is no longer any visible incoming supply after 2016, the supply glut in the office market would limit any rental gains for these properties.
“Vacancy rates remain the highest for business parks, relative to the other subsectors at 15.9 percent, which is likely to widen in 2016 before improving thereafter, given the lack of new supply,” noted Credit Suisse.
For the warehouse segment, the upcoming supply is expected to remain elevated at 450,000 sq to 550 sq ft per annum in 2016 to 2017. But unlike factory supply, only 25 percent of the incoming space in 2016 will be in the form of single-user assets, while most consist of multi-user buildings.
Additionally, there are still about 2 million sq ft of potential pipeline that are still under planning with no firm completion dates. Credit Suisse estimates that 33 percent of this are single-user warehouses mostly in the western region.
Looking ahead, demand for industrial space is forecasted to remain soft given the sluggish economic growth and weak manufacturing activity.
“As such, vacancy rates are likely to widen as incoming supply is unlikely to be completely absorbed. Existing vacancy rates across warehouses, multiuser factories, and business parks are already at 8.6 percent, 12.8 percent, and 15.9 percent respectively, which will add to the weakness in demand.”
Leasing transactions for all industrial properties have also slowed further in 3Q 2015 and 4Q 2015. On an annual basis, business parks registered the largest decline of 18 to 55 percent, followed by warehouses (21 to 34 percent) and factory space (10 to16 percent).
However, 28 percent of businesses in an EDB survey are expecting conditions to worsen in 1H 2016. Based on the study and analysing the tenant mixes, Credit Suisse estimates that Mapletree Industrial Trust’s tenants are the least pessimistic, followed by Mapletree Logistics Trust and Ascendas REIT