Industrial spaces to bear the brunt of battered manufacturing sector

Impact of Brexit likely to be evident in 2H.

Industrial rents and prices are expected to continue to soften in the coming quarters as Brexit is seen to create uncertainties in the global economic health, especially that of the EU.

According to Savills, the impact from Brexit only came in at the end of June, thus its effect was still not reflected in the Ministry of Trade and Industry (MTI)’s June industrial production figures.

As the local manufacturing sector is reliant on the EU's performance, Savills cautioned that the weakening economic performance in EU is likely to affect Singapore’s growth prospects.

The latest estimates from MTI indicated that the local economy is projected to expand by 1.0% to 2.0% in 2016, which if turns out, would be the slowest growth since 2009. According to MTI, global economic growth is expected to remain lacklustre. Aside from the Brexit event, the Chinese economy is also expected to continue to slow. Singapore’s manufacturing sector should therefore be affected. Given the weak global demand, MTI highlighted that the expansion of the manufacturing sector in Q2/2016 may not be sustainable.

While moderation is expected in the growth prospects for industrial space, Savills said that it is not a case where abject pessimism pervades the industry, because once rents and prices have adjusted to match the new production costs equilibrium, the latent demand will transform to real demand.

"This new production equilibrium is formed by higher labour costs and a shift away from the heavy oil and marine sectors towards the high and green technology and biotechnology ones," it said.