Will industrial rents bottom out next year?

But recovery might be rocky as firms are looking to downsize and remain cost efficient.

Due to lessening supply risk, Singapore's industrial sector can start to bottom out from the end of 2017, DBS Equity Research said.

"The recent recovery in the manufacturing sector is fuelling expectations that demand could pick up in 2018, just as the total number of supply abates," said DBS analyst Derek Tan.

The take-up of industrial space still lagged behind the increase in supply, with a net increase in unoccupied space of close to 1.1 million sqft. It is expected that the majority of this space will be taken up progressively by end-user occupiers in the coming quarters.

However, the industrial recovery might still be uneven as firms look to consolidate or downsize their space requirements to remain cost-efficient.

The industrial market is at the tail-end of a spike in supply completions starting from 2014 and peaking in 2017.

"As such, landlords are typically still facing an increasingly competitive operating environment, but that should start to abate in 2018 when competition from new supply starts to abate. That said, we view that 2018 will be a year of stabilisation, given expectations that the hike in new supply in 2017 will need time to be absorbed," Tan said.

Based on the latest Jurong Town Corporation (JTC) statistics, a total of 46.5 million sqft of new industrial space is either under construction or in planning and projected to complete over the next four years, from 2017-2020. Of this, more than 70% of the space will be completed and operational by the end of 2018.

Amongst industrial types, the single-user factory space will see close to 1.7 million sqm increase in new supply representing around a 7% increase, the multi-user factory space will see close to 1.5m sqm of new supply with a 14% increase, followed by the warehouse space at around 9%.

The business park space will add another 0.2m sqm. However, most of the space is pre-committed.

Still, vacancy rates are expected to remain on an uptrend to reach 11% and bottom out only from 2019.

As the influx and pace of completions are skewed over 2016-2017, we believe that, on average, spot rentals are likely to see the downside to the tune of 5% in 2017, with the exception of business park space, which we believe will be resilient with around 0-3% growth.

The report concluded that rentals across most sectors (industrial, warehouse and business parks) are expected to start turning up in 2018.