Singapore industrial sector nears a tipping point

DBS Vickers forecasts 7-10% decline in spot rents over the next 3 years.

Amid a sluggish demand for space, DBS Vickers forecasts vacancy rates to rise by 4-5ppts for all industrial sectors and spot rents to decline by 7-10%
over 2013-2015.

Furthermore, DBS Vickers notes that consolidation could take place within the leased premises if global trade remains anaemic, resulting in shadow space as firms look to sublease part of their premises to supplement their income.

"This is likely to put further pressure on rents for leases that are renewing in the coming quarters," it said.

Here's more from DBS Vickers:

Daunting supply outlook keeps growth prospects in check. Supported by lower than average completion of new industrial space over the past few years, vacancy levels for all industrial segments (Business Parks, Multi-User Factories and Warehouses) have hit record lows.

This had led to a strong surge in industrial capital values and rents by 6-26% since the start of 2012.

Looking ahead, we see market dynamics turning given that close to 49.7msqft of industrial space currently under construction will be completed over 2013-2015. This, on an annualised basis, represents more than twice the annual supply over the past decade.

Industrial landlords might face vacancy risks. As operating conditions get progressively tougher in the coming quarters, we believe that industrial landlords will likely see lower retention rates. Tenants, especially the marginal ones, may look to relocate or downsize, resulting in an increase in portfolio vacancy risks. However, we are not anticipating a major fall out at this point. Industrial REITs with the highest percentage of expiries in the next financial year are Sabana REIT (47% of income), MINT (32%), CREIT (29%) and A-REIT (26%). Cache offers the strongest visibility given minimal re-leasing activities (8%).