_Singapore: ‘Move towards efficiency’ by industrialists

Singapore’s 2017 Gross Domestic Product (GDP) grew 3.6% on a y-o-y basis in 2017. The manufacturing sector continued to be the key engine of economic growth in fourth quarter of 2017, particularly the electronics and precision engineering clusters. Average rents of factory spaces slipped 0.5% q-o-q in Q4 2017 as occupancy rates continue to fall. Build-to-suit development trend is poised to continue in 2018 as popularity of such facilities rise.

Exhibit 1: Average Monthly Gross Rentals for Conventional Industrial Space by Cluster

Source: Knight Frank Research
Note: Rentals are based on Knight Frank’s basket of industrial properties, which are monitored every quarter.
*Range of rentals is estimated based on the average of minimum and maximum rentals derived.

The buoyant manufacturing outlook will continue to support demand for high- specification industrial spaces in the first two to three quarters of 2018. New supply of industrial spaces between 2018 and 2020 is estimated at 31.3 million sq ft, compared to the 10.0 million sq ft of industrial spaces that came on stream in Q4 2017 alone. As new supply in the next few years wane, the occupancy rates of various industrial spaces are set to recover, albeit on a slow and steady trajectory as industrial space demand catches up.

Following the ‘en bloc fever’ of mainly residential developments in 2017, construction demand is expected to increase with the construction sector possibly sourcing out more industrial production and warehousing spaces to meet the growing demand from upcoming new residential projects.

Average industrial rents in 2018 is forecasted to be between -3.0% to 1.0% by the end of the year. 

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