Prime Warehouse And Logistics Rental Growth Expected To Moderate Amid 3.7m Sq Ft New Supply This Year, Which Surpasses Historical 4-year Average By 48%
Single-user Factory New Supply Set To Soar To 10.7m Sq Ft In 2024, A 141% Surge Over Four-year Average
Savills Research forecasts that rents for some segments of the industrial market are set to rise this year, despite growing vacancy rates.
While warehouse vacancy level has risen to 8.9%, +0.5 of a percentage point (ppt) quarter-on-quarter (QoQ), warehouse and logistics properties’* rents have increased 2.0% QoQ to S$1.68 per sq ft.
Going forward, the prime warehouse and logistics segments are likely to lead rental growth. Nonetheless, this rental growth is likely to slow down because an estimated 3.7 million sq ft (NLA) is anticipated to come online this year. This is 48% higher than the average of 2.5 million sq ft (NLA) in the last four years.
Upcoming supply for single-user factory space is also expecting a surge to 10.7 million sq ft (NLA) this year, compared with the four-year average of 4.5 million sq ft (NLA). The increase in supply is likely to put pressure on the vacancy rate and hinder rental growth.
Alan Cheong, Executive Director, Research & Consultancy, Savills Singapore thinks this phenomenon of rising rent despite rising vacancy has a rational explanation – that of ‘tenancy of last resort’. In the challenging business environment, businesses that decide not to wind up will find it important to contain costs.
He says, “SMEs, be it those in the traditional industries or software developers shift down from larger and more expensive industrial building types to lower cost ones. Also, some SMEs who require small storage space but cannot find those sizes in warehouses - since their lettable area offered is often much larger - would resort to storing it in factories.Therefore, factory spaces that rent for S$1.90 psf per month have now become the backstop for the SMEs who are still not giving up the fight in this difficult environment.
Over time, if business conditions do not improve, we believe that rents may ultimately have to reflect that. For now, we are maintaining our rental forecast for multiple-user factories at 0% year-on-year while those for warehouses are expected to expand between 0% to 3%.”
Sally Tan, Senior Managing Director and Head of Client Solutions at Savills Singapore says, “Cost considerations are driving sustainability efforts as both occupiers and asset owners increasingly recognise that adopting eco-friendly practices not only reduces expenses associated with resource consumption but could also mitigate long term risks and enhance operational efficiency. “Less is More” – Sustainable buildings that use less resources will see their rents increase in the long term.”
*: Based on Savills basket of private multiple-user warehouse properties ranging from 2,000 sq ft to 80,000 sq ft in size, with an average monthly asking rent of at least S$1.30 per sq ft.