Industrial sector may see rents softening, vacancies rising this year: expert

The island-wide vacancy rate forecasted to increase to 12.5%.

After rising to an 11-year high last year, rents of industrial space across the city-state could rise at a slower pace of 3% to 5% this year amid a flurry of new supply and as sluggish demand continues to weigh on leasing activity, Colliers said. 

In its quarterly market report, Colliers said the JTC all industrial rental index rose by 1.7% QoQ in the fourth quarter, pushing the full-year rental growth to 8.9% for 2023, which marked the highest annual growth rate since 2012. 

It estimated that about 1.1 million square metres of new supply coming onstream each year starting 2024 to 2026, higher than the 700,000 square metres of the actual new supply recorded annually over the past three years.

Warehouses are expected to lead the uptrend with a projected 4% to 6% rental growth this year, while muted growth of up to 2% is seen for business parks and factories. 

“Industrial performance would be fragmented in 2024, as the higher supply could lead to higher vacancies and stagnating rents. On the other hand, shipping disruptions due to escalating geopolitical issues could bring tailwinds for warehouse space demand,” Colliers said.

READ MORE: Surge in completions to slow industrial rent growth in 2024 

Islandwide vacancy edged lower to 11% in the final three months of 2023, although Colliers expects vacancies to inch back up and reach 12.5% this year. 

Meanwhile, the property agency also sees prices of industrial assets across the city-state moderating to 2% to 4% in 2024. It sees more sale and leaseback transactions and portfolio sales happening this year as companies look to free up their balance sheets. 

The ongoing flight-to-quality trend could also inspire landlords to embark on asset enhancements or a full-on redevelopment of their aging properties to attract tenants