Expect prime industrial rents to plunge below $2 psf

But the spike of supply that caused it is expected to reverse the downward trend by end-2018.

Savills Investment Manager (IM) said prime rents for industrial properties are expected to go lower than $2 psf per month, which was the average in 2017. Prime yields are forecast to follow suit and dip below 4.9%.

The report said that despite an uplift in the country’s export growth, Singapore logistics market weakness lingers. Demand for space has lagged behind supply growth over the past few years as firms have consolidated or downsized their space requirements in order to save costs.

However, Savills IM noted that this trend should reverse from 2018 as the development pipeline eases. “Logistics demand also hinges on the strength of the global export uplift. In line with a broader economic and office market recovery, rents should bottom out in late 2018, whilst the outlook for yields remains stable. In the logistics sector, we recommend targeting modern logistics facilities that have a credit tenant and long lease that has recently started.”

Industrial rents dipped 2.8% YoY in Q4 and are expected to decline further in 2018, as 1.6 million sqm of factory and warehouse supply is expected to be completed, Cushman & Wakefield (C&W) said. C&W said the pace of rental decline has slowed as industrial rents fell only 2.8% in 2017, compared to 6.8% in 2016.

However, the industrial recovery might still be uneven as firms look to consolidate or downsize their space requirements to remain cost-efficient. The industrial market is at the tail-end of a spike in supply completions starting from 2014 and peaking in 2017.