Warehouse glut seen in 2017

A record amount of completions will hit the market.

The prolonged weakness in the manufacturing sector continues to take a toll on industrial rents, especially on the warehouse sector during 3Q, Jurong Town Corp. (JTC) ’s latest statistics on the industrial property market show.

Industrial rents fell 2% q-o-q in 3Q16. The warehouse sector was the worst hit, with rents posting a steep fall of 4.4 per cent q-o-q. This is the second highest quantum of fall since warehouse rents started to soften in 1Q14.

JLL notes that this steep decline in rents can be attributed to the weak global trading conditions that has weighed down demand for warehouse space, leading to the vacancy rate of warehouse space staying above the pressure point of 10% for the second consecutive quarter. Some 10.9% of warehouse space was vacant as of 3Q16.

Given that global trading conditions is expected to stay lacklustre in the months ahead, JLL sees demand to continue to lag behind supply, forcing vacancy rate to edge further beyond the pressure point of 10%.

By now, warehouse rents have corrected by 13.5% since peaking in 4Q13. According to JTC, an estimated 901,000 sqm gross floor area of warehouse space is expected to come on stream in 2017. If these materialize, 2017 will set the record as the year with the highest ever new warehouse completion. With a looming supply glut, JLL expects warehouse sector to stay under the weather for several more quarters.