Factory rents continue to tumble as manufacturing demand sinks

Even business parks aren't faring well.

Average monthly rents for conventional factory space contracted by 3.5% quarter-on-quarter to $1.80 per sq ft in the first three months of the year, marking the the third consecutive quarter of decline.

Data released by DTZ show that factory rents have dropped by 8.4% since 2Q15. In the first quarter of 2016, monthly gross rents of first-storey and upper-storey factory space declined by 3.3% and 3.6% q-o-q to $2.00 per sq ft and $1.60 per sq ft, respectively.

The compression in rents reflected the contraction of the manufacturing sector from mid-2015 to date. The Purchasing Managers’ Index (PMI) remained below the threshold 50 reading for a ninth straight month in March, due to the continual hit of the manufacturing sector by weak global export demand and effects from ongoing economic restructuring.

Business park rents did not fare much better, despite the fact that this segment is considered more resilient to the demand slowdown. Monthly business park rents fell by 2.0% q-o-q to $4.90 per sq ft in the first quarter, due to the subdued macroeconomic environment.

The weaker office market also exerted further downward pressure, as traditional office occupiers that qualify for business park space are less compelled to move to business parks. Some business park occupiers may also consider moving to office space as the cost gap narrows, DTZ said.

However, the expected growth in the information and communication technology (ICT) and biomedical sectors may help support the demand and rents for business parks.