Industrial rents and prices post 12th consecutive quarter of growth in 3Q2023
Industrial rents and prices rose 2% and 1.4% q-o-q in 3Q2023 respectively, despite the manufacturing sector facing a contraction in 3Q2023. JLL’s Tan Boon Leong believes industrial rents may post full-year gains of around 8% to 9%, surpassing the 6.9% growth recorded in 2022, while he anticipates industrial price growth to moderate from 7.5% in 2022 to around 5% to 6% in 2023.
Despite a weak manufacturing outlook, industrial real estate indicators such as occupancy levels, prices and rents have been resilient for most industrial property types in 3Q2023. Statistics released by JTC show that prices and rents have risen by 4.4% and 7.1% respectively for the first nine months of the year. With an uncertain economic backdrop and increased supply coming in 2024, as well as higher rent base, we expect future rental growth to slow.
Rental growth for industrial properties was driven by the logistics and warehouse segment, which recorded a rental increase of 2.4% q-o-q. The multiple-user factory segment saw a q-o-q increase of 2%, followed by rents for single-user factories at 1.9% and business parks at 1.2%. Prices of single-user factories rose 1.7% q-o-q, while multiple-user factories saw a slower 1.1% q-o-q growth.
Despite this, Knight Frank Singapore’s Leonard Tay has a more optimistic view, noting that business sentiment for the manufacturing sector remained positive based on the SingStat 3Q2023 Business Expectations Survey, while the Singapore Purchasing Manager’s Index registered an expansion in September. Industrial occupancy rates registered a slight fall of 0.2 percentage points to 88.9%, as new supply outpaced demand.
Tricia Song, head of research at CBRE for Singapore and Southeast Asia, points out that industrial prices continue to inch upwards at a slower pace than rents in 3Q2023. This is the fifth consecutive quarter of prices increasing at a slower rate than rents. Although yields remain relatively attractive for leasehold industrial assets, investors are probably more mindful of the high cost of financing.
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Huttons’ Lee Sze Teck adds that companies are unlikely to expand for the moment until there is more clarity on the economy. JLL’s Tan believes industrial growth may extend into 2024 for both rents and prices.
All these indicators suggest that a recovery might soon be on the horizon, states Tay. “Although not out of the woods yet, there are some early signs that the outlook by the end of 2023 will be more hopeful for manufacturing than at the start of the year.”