Industrial transactions hold steady ahead of expected uptickIndustrial property investment sales up by 4.4% y-o-y in 1H2024Industrial property sales hit 5-yr high of $13.59 bil in 2024The groundbreaking ceremony for VisionPower Semiconductor Manufacturing Company’s (VSMC) new US$7.8 billion ($10.5 billion) wafer manufacturing facility in Tampines took place on Dec 4. The plant is set to start initial production in 2027 and is expected to produce 55,000 wafers per month by 2029, creating around 1,500 job opportunities. VSMC is a joint venture between Vanguard International Semiconductor Corporation from Taiwan and NXP Semiconductors from the Netherlands. But VSMC is not the only company expanding its operations. In March, Japan’s Toppan Holdings started construction on a factory in Jurong Lake District which will manufacture semiconductor packaging materials. It is reported that Toppan is investing an estimated $450 million in this project.VSMC and Toppan are among the chipmakers and other related businesses that are choosing to set up new production plants and research facilities in Singapore to increase their supply chain resilience. Leonard Tay, head of research at Knight Frank Singapore, pointed out that this shows Singapore’s position as a global hub for semiconductor and chip production due to its stability amidst ongoing geopolitical tensions in other parts of the world.Read also: Industrial property in Tampines for sale at $15.9 milAdvertisementAdvertisementDespite the dip in global semiconductor industry in 2023 due to lower demand and increased supply, it has since recovered with a 26% year-on-year increase in revenue for the first three quarters of 2024, according to research by London-based consultancy Omdia. This is a significant reversal from the previous year when revenue fell by 9% year-on-year to USD 544.8 billion for the whole of 2023. This recovery has provided a boost to Singapore’s manufacturing sector which had a lacklustre first half of the year with two consecutive quarters of contraction. However, output in the third quarter of 2024 saw an expansion of 11% year-on-year, led by the electronics cluster, thanks to strong demand for smartphone and PC semiconductor chips, as stated by data from the Ministry of Trade and Industry.Slower growth in rentsThe industrial property market in Singapore has witnessed consistent growth in rents throughout 2024, with an increase in the first three quarters of the year. As of the third quarter of 2024, the JTC All Industrial Rental Index has risen for 16 straight quarters since the third quarter of 2020. However, the momentum has gradually slowed in comparison to the 8.9% rental increase recorded in 2023. On a quarter-on-quarter basis, the index grew by 1.7%, 1%, and 0.3% in the first, second, and third quarters of 2024, respectively. This plateauing of rents shows a growing sense of caution among occupiers amidst the uncertain macroeconomic climate. Data from JTC also showed that rental transaction volumes fluctuated throughout the year, with a 9% year-on-year and a 5% year-on-year decline observed in the first quarter of 2024 and the second quarter of 2024, respectively. Catherine He, Colliers’ head of research for Singapore, said that with capital expenditure and budget constraints, occupiers are taking a more cautious approach, seeing the flexibility to adjust to the ever-changing market conditions as being valuable.Read also: Industrial leasing transactions up 5.8% q-o-q in 3Q2024: Knight FrankAdvertisementOn the other hand, more significant factors such as consolidation in the third-party logistics and e-commerce industries have also played a part in influencing occupier resistance this year. However, the extent to which these factors have impacted the industrial property market has varied across different segments. For instance, the multiple-user factory and warehouse segments have stayed relatively resilient, registering rental growth across the first three quarters of the year supported by stable occupancy rates. On the other hand, the single-user factory segment saw softer demand, resulting in both rents and occupancy rates dropping by 0.3% quarter-on-quarter in the third quarter of 2024, marking the first rental decrease since the third quarter of 2020. Business park rents also saw a dip, falling by 0.2% quarter-on-quarter in the same period, despite a minor boost in occupancy rates. The decrease in rents extended the 0.1% quarter-on-quarter decline registered in the second quarter of 2024.Big-ticket industrial dealsLeasing activity might have been mixed, but the industrial sales market saw many transactions. After a slow start to the year, things picked up in the second quarter of 2024, with several notable deals taking place. Some of these transactions include the sales of BHL Factories for $74 million in May, Kian Ann Building for $63 million in June, and a single-user factory for $36 million in April. The market saw a further boost in the third quarter with a joint venture between Warburg Pincus and Lendlease Group acquiring a $1.6 billion portfolio of seven industrial assets from Soilbuild Business Space REIT, which is owned by Soilbuild Group and Blackstone. Other significant deals took place in the fourth quarter of 2024, including ESR-Logos REIT’s purchase of a 51% stake in an industrial site for $428.4 million and Ho Bee Land’s sale of a 49% stake in Elementum, a biomedical sciences development at 1 North Buona Vista Link, to a Brunei sovereign wealth fund for $272 million. These transactions resulted in a sevenfold increase in industrial property sales to $2.45 billion in the third quarter of 2024, according to Alan Cheong, executive director of research and consultancy at Savills Singapore. In a research report in November, Savills attributes the surge in transactions to the improved sentiment following the US Federal Reserve’s decision to cut interest rates in September.Industrial rents, prices are expected to rise in the futureDespite the strong performance in the last quarter of 2024, Cheong views the significant industrial deals of 3Q2024 as an isolated occurrence. He expects to see a couple more significant deals happening in 2025, but the value of each deal may be significantly lower than $1 billion, unlike in the third quarter of 2024.Supply-demand imbalanceAs stated in JTC’s 3Q2024 market report published in October, it is estimated that around 0.2 million sqm of new industrial space will be completed in the last quarter of 2024. Of this supply, 33% is business park space, 31% is single-user factory space, 30% is warehouse space, while the remaining 6% is multiple-user factory space. A further 1.6 million sqm of space is set to be completed in 2025, nearly doubling the average annual new supply of 0.9 million sqm recorded over the past three years. The bulk of the new supply is made up of single-user factory space, which stands at 0.74 million sqm, followed by warehouse space, which is at 0.65 million sqm.The inflow of new supply, together with reduced demand, will probably lead to a supply-demand imbalance in the industrial property market. This will result in slower pre-commitment and occupancy rates at both upcoming and existing developments, points out Catherine He from Colliers.However, demand for multiple-user factories, centrally located food factories, and sought-after locations for logistics space remains strong. Savills is projecting rental growth of up to 3% for multiple-user factories, warehouses, and logistics rentals this year, before tapering down to between 0% and 2% in 2025. In addition, the electronics and advanced manufacturing sectors are also expected to continue performing well and attracting investments. “Should the US Federal Reserve continue to cut lending rates in 2025, this could encourage more companies to deploy capex to pursue growth and expansion,” commented Tricia Song, head of research for Singapore and Southeast Asia at CBRE.Knight Frank’s Tay also has a positive outlook on the semiconductor industry, which he observes will continue to bolster demand for industrial real estate in Singapore. This is supported by increasing electric vehicle demands and advancements in artificial intelligence, which will drive up demand for such products. He also mentions that data centres will be a critical factor in the industrial sector as part of Singapore’s plan to increase its data centre capacity by at least 300 megawatts under the Green Data Centre Roadmap launched in May 2024. On the other hand, business park rents are expected to come under pressure due to companies downsizing their footprints to cut costs or optimise their workspace in response to more flexible working arrangements. Savills has estimated that rents could dip by between 3% and 5% this year. Nevertheless, the demand for modern facilities in central locations is expected to remain strong, providing some support for this market segment.
The scarcity of land in Singapore has resulted in a significant demand for condos, making it a sought-after investment. As a compact island country with a burgeoning population, land availability is limited, leading to stringent land use regulations and a fiercely competitive real estate market. This has resulted in consistently rising property prices, making real estate, especially condos, a profitable venture with the potential for capital growth. As a result, new condo launches are highly anticipated and in high demand.