AI-Related Demand Lifts Singapore Industrial Prices and Rents in Q3 as Occupancy Slips to 88.9%

The rental index has risen for 24 quarters since the trough in the third quarter of 2020. The overall occupancy rate eased 0.2 percentage point from the previous quarter to 88.9 per cent, weighed down by tenants vacating older factories earmarked for redevelopment and weaker demand for suburban business parks. Rents at multiple-user factory spaces, single-user factory spaces, business parks and warehouses rose 1.6, 3.1, 0.7 and 2.8 per cent year on year respectively. Business park rents inched up 0.1 per cent on the quarter while occupancy slipped 0.7 percentage point to 77.2 per cent. Warehouse rents rose 1 per cent on the quarter, with occupancy at 89.7 per cent.

Chua Yang Liang, JLL’s head of research and consultancy for South-east Asia, said global demand for semiconductors supported rent growth, and that South-east Asian economies such as Singapore and Malaysia are firmly plugged into this driver. Tridiana Ong, head of occupier strategy and solutions at Knight Frank Singapore, noted that advanced estimates showed the economy grew 5.4 per cent year on year in the third quarter, with manufacturing up 7.5 per cent. Still, the quarterly increase in leasing transactions for multi-user factory and warehouse space was “relatively measured”, suggesting much of the demand came from lease renewals and ongoing space needs rather than expansion. She added that geopolitical tensions are starting to weigh on occupier sentiment, and that cost-cutting and space-optimisation efforts are beginning to affect occupancy.

Chua expects rental growth to remain modest, with overall rents up 2 to 3 per cent for the full year, and prices rising 3 to 4 per cent as capital continues to flow into safe havens such as Singapore, driving further marginal yield compression. With CBD office rents significantly higher and prime office supply limited, business parks could offer possible space solutions, Ong said.

JTC said that as at end-September, around 300,000 sq m of new space could be completed in the fourth quarter. Between 2027 and 2030, average annual supply of 1.2 million sq m is expected, of which 59 per cent is single-user factory space with pre-committed demand. That is slightly higher than the average annual completions of around one million sq m over the past three years. In the third quarter JTC awarded two tenders, at 6 Tuas Avenue 14 (single-user) and 5 Tuas Avenue 13 (multiple-user), with bids reflecting strong market interest in multiple-user sites. A tender for a single-user site at Jalan Besut was not awarded as the top bid of S$500 per sq m per plot ratio did not reach the reserve price. Total ready-built facility returns in the quarter were 105,800 sq m, with about 71 per cent due to natural expiries or companies consolidating their operations.

Ong said total industrial investment sales value jumped from an estimated S$1.4 billion to about S$2 billion, driven by a few large-ticket deals and sales from newly launched strata industrial developments. Factories with remaining lease tenures of 30 years and below chalked up only a marginal increase in transactions, but their total sales value almost tripled from S$360.7 million to S$972.2 million.