Commentary on Q2 2020 JTC quarterly statistics and review of Q2 2020 industrial market

Christine Li • 23/07/2020

Latest Q2 data from JTC  show that industrial rents fell by 0.7 per cent quarter-on-quarter (qoq) in Q2 2020. This is the lowest since Q2 2012. The fall in rents was broad-based across all segments, with single-user factory rents falling the steepest at 1.0 per cent. Business park rents were the most resilient and fell only 0.2 per cent qoq. Cushman & Wakefield’s basket of rents for  Business parks in the city fringe rose by 2.4 per cent in the second quarter of 2020 from the first three months of this year. Firms sought out business park spaces in the city fringe to locate secondary offices to supplement their main office in the Central Business District as a way to manage real estate costs. 

Christine Li, Head of Research, Singapore and Southeast Asia said “Business parks in the city fringe have always been actively sought after because of their central location and their specifications which mirror Grade A offices but at a fraction of the cost. The pandemic has not necessarily triggered a sudden movement by the corporate occupiers into business park city fringe locations such as Mapletree Business City I and II. It has always been a strategy for occupiers to consider business parks as a viable alternative for a secondary operating location”.  Mapletree Business City I & II have enjoyed high occupancy rates and the rents for these properties remained robust during the second quarter of 2020.

The warehouse segment has also remained resilient as demand for storage space increased significantly due to the government-led stockpiling of essential medical supplies and basic foodstuff to guard against future supply disruptions. The increased storage of dry groceries and frozen foods stock has also led to higher demand for cold store facilities. 

Going forward, Cushman & Wakefield expects rents in these prime logistics ramp-up properties to hold steady or even rise, while that for conventional warehousing spaces to lag given the current higher vacancy rates in the sector. The growing interest in warehouses has spurred an increase in development activity. For instance, Australian logistics firm LOGOS is partnering with CSC Holdings Limited to develop a site at Tanjong Penjuru Crescent into a six-storey ramp-up warehouse with 46,000 square metres of space at a development cost of S$108 million. The logistics facility will be built-to-suit with high specifications for CSC Holdings Limited, which has committed to a long-term lease upon completion of the property.

Brenda Ong, Executive Director and Head of Logistics & Industrial said “Industrial players partnering developers to redevelop an asset is an attractive option to maximise building efficiencies; alternatively, a sales and leaseback strategy is another way to unlock the value of an asset and inject the proceeds to their main business. The value of the asset is best maximised when an industrialist plans for long-term use and keeping their business sustainable. This way, investors are able to maintain a stable income.”

Demand for factory space will be driven by advanced manufacturing, electronics, medical diagnostics supplies, biomedical supplies and food manufacturers including cloud kitchens. 

“Food manufacturers and distributors are generally resilient and have shown to remain unscathed by the circuit breaker restrictions. In fact, demand for cold store facilities increased as consumers began to order direct from food distributors in the period when dining at F&B outlets was not permitted. Even with the easing of the restrictions, food manufacturers are now focussed on leveraging smart factory technology to improve manufacturing processes including storage, distribution and last mile delivery.” Ms Ong added.

Amidst economic uncertainties and regional lockdowns which have disrupted the supply chains, industrial prices declined in Q2 2020 by 1.1 per cent qoq, JTC’s Q2 2020 figures show. Notably, prices are now at a historical low since Q1 2012. The fall in prices was mainly driven by multi-user factory segment which fell 1.6 per cent qoq while single user factory prices fell 0.6 per cent qoq. Due to the circuit breaker measures in Q2 2020, market activities and transaction volumes took a plunge in Q2 2020, recording only 130 units changing hands. This is another historical quarterly low since Q1 1991 (112 units). Moving forward, we expect volumes to remain low as the market takes on a more cautious approach given economic headwinds. Nonetheless, keen-eyed investors will be waiting on the sidelines looking to pick up any opportunistic deals that may emerge during this crisis.


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