Moreover, Singapore’s factory activity has been contracting in recent months, according to the Purchasing Managers’ Index (PMI) which fell to 49.9 in Q1 2023 (Chart 1). External demand weakened amid growing macroeconomic uncertainties. Manufacturing sentiment has similarly been softening across the region, including China, where export growth slowed in April 2023. 

The price index of all industrial properties reached 99.4, rising by 1.5 per cent in Q1 2023 to their highest level in 27 quarters or since Q2 2016 (Chart 2), according to JTC’s quarterly market report. However, prices grew slower compared to the 1.7 per cent increase in Q4 2022 and 2 per cent growth in Q3 2022. Year-on-year, prices increased by 6.9 per cent last quarter.

The slower price growth can be attributed to smaller gains registered for single-user factories which rose by 0.9 per cent last quarter to 87.6, up from the 0.5 per cent growth in Q4 2022. Conversely, prices for multiple-user factories climbed by 2.1 per cent in Q1 2023, compared to 2.5 per cent in Q4 2022 (Chart 3).

Inflationary pressures have been driving the upswing in prices. Rising costs hampered industrialists with tighter margins, and many held on to their asking prices despite weaker demand. 

Transaction volume dipped by 20 per cent quarter-on-quarter (q-o-q) to 380 units in Q1 2023 (Chart 4). Resales fell by 17.1 per cent for multiple-user factories to 334 units and 23.1 per cent to 20 units for warehouses.

Demand for resale single-user factories held steady last quarter at 22 units. Transactions for new multiple-user factories dipped to a three-year low at 3 units sold last quarter. 

Overall rents rose at a quicker pace of 2.8 per cent in Q1 2023 to 100.4, the fastest growth since Q3 2013 when rents grew by 4.4 per cent (Chart 5). Year-on-year, rents surged by 8.8 per cent in Q1 this year.

Rents rose across the board last quarter, with multiple-user and single-user factories registering the highest increases of 3 per cent to 99.8 and 104.1 respectively, followed by warehouses at 2.9 per cent to 95.5 and business parks at 0.6 per cent to 114.8 q-o-q.

Rental demand remained robust for multiple-user factories, growing by 1.9 per cent q-o-q to 2,385 units last quarter (Chart 6). Demand surged the most by 98.4 per cent to 123 units for business parks, possibly because of their slower rental growth.

Overall occupancy rates fell 0.6 percentage points to 88.8 per cent, the lowest level since Q2 2018 (Chart 7). The lower occupancy rates may be due to weaker demand, more available stock, and a higher supply of industrial space as new completions remain strong in Q1.

In Q1 2023, the total occupied stock rose marginally by 5,000 sqm to 46.4 million sqm. Conversely, the total available stock of industrial space spiked by 357,000 sqm to 52.3 million sqm q-o-q. 

Vacancy rates climbed to 11.2 per cent and rose across all segments. Vacancies of business park spaces were highest at 18.7 per cent, followed by single-user factory space (11.3 per cent), multiple-user factory space (11.1 per cent) and warehouse space (9.7 per cent). 

The trend indicates that more industrialists have shifted away from business park spaces. Bigger tenants have downsized, and some moved to office spaces since the rental gaps have narrowed. 

According to the Monetary Authority of Singapore, weaker external demand, and the electronics downcycle may persist. However, certain manufacturers and sectors may continue to prop up domestic demand, such as advanced manufacturing, medical diagnostic supplies, biomedical equipment, and food manufacturers, which may drive demand for related industrial spaces.

Nevertheless, overall prices and rents may moderate as more supply comes onstream. Around 1.0 million sqm of new industrial space is expected to be completed by 2023, of which single-user factory space makes up about 62 per cent, warehouse space at 21 per cent and, multi-user factory and business park space at 17 per cent. The tender for one JTC site under the 1H 2023 Industrial Government Land Sales Programme at Woodlands Avenue 8 will close on 20 June 2023, adding to the future supply of industrial space as well.