Industrial real estate defies manufacturing slowdown in 2023

Rents to rise fastest in prime logistics and warehouses this year.

Singapore’s industrial real estate sector continued to expand last year despite the sluggish manufacturing activity, making it well-positioned to sustain its growth this year on the back of improving economic prospects, according to property analysts.

Brenda Ong, executive director for logistics  and industrial at Cushman & Wakefield, traced the sector’s 13 consecutive quarters of expansion to a tight supply situation coupled with resilient demand from new economy sectors, including tech firms, third-party logistics providers and biomedical companies. 

Latest JTC statistics showed the all-industrial price and rental indices inched up by 0.6% and 1.7% QoQ in the fourth quarter, respectively. For the entire 2023, overall prices rose albeit at a slower pace of 5.1% last year from 7.5% in 2022, while rents climbed at a faster clip of 8.9% last year from 6.9% the year prior. 

“The industrial market saw broad-based rental growth across property types, though this was driven by newer stock. Given higher inflation, landlords also held steady on their asking rents,” Ong said.

Tricia Song, CBRE’s research for Singapore and Southeast Asia, noted that the ongoing flight to quality trend also helped boost the sector’s growth last year with the higher take-up for newly built factories, pushing the occupancy rate for multi-user factories to outperform warehouses and business parks.

“With the anticipated recovery in global electronics demand for 2024, manufacturing is expected to rebound, which should continue to support demand for industrial space across both the hi-tech and prime logistics segments,” Song said. 

READ MORE: Industrial property occupancy rate increases to 89.0% in 4Q23

Leonard Tay, research head at Knight Frank, also expressed optimism on the prospects for the industrial real estate sector as large multinational manufacturers are expected to ramp up their expansion this year, following muted growth since the second half of 2022.

For Ong, they expect the rental growth to ease this year due to the fragile recovery of the manufacturing sector, higher incoming supply and the increasing tenant resistance amid a high interest rate environment.

Knight Frank expects industrial rents and prices to expand by 3% to 5% in 2024, led by warehouses due to strong demand for premium storage space and the tight occupancy levels in the market. 

Cushman & Wakefield sees rents for factories and business parks growing by 2% to 3% this year, while prime logistics and warehouse rents could increase by up to 5%.