Continued Tapering in Industrial Government Land Sales Boon for Singapore Industrial Market

Demand for industrial space moderated in 2018 due to uncertainties in the global outlook, as stock markets plunged amidst the brewing US-China trade war. Net demand measured by absorption of multiple-user factory space for first 9 months of the year was just 1.2 million square feet (sq ft), a significant decrease from the 2017 full-year absorption of 3.9 million sq ft. Similarly, warehouse net absorption over the same period fell to 2.9 million sq ft, as compared to the 8.6 million square feet absorption in 2017.

Demand for industrial sites through government land sales has also been muted. Out of the four confirmed list sites on the second half of 2018 (2H2018) that have been tendered, two were not awarded because the bids were deemed too low by the government. There is also a lack of participation as none of the four tenders received more than four bids. This is to be expected as industrial rents stagnated last year due to the supply overhang from the preceding years.

Under the Industrial Government Land Sales Programme for the first half of 2019 (1H2019), the government released five confirmed list and seven reserve list sites.

Despite the number of confirmed list sites falling from six to five, the total Gross Floor Area (GFA) offered rose slightly from 824,000 sq ft in 2H2018 to 894,000 sq ft in 1H2019. This was due to the addition of the Senoko Drive site, which was the largest site on the confirmed list at 323,000 sq ft. This site is also being sold with a lease tenure of 30 years, in contrast to the other confirmed list sites which are sold with a tenure of 20 years. The release of the Senoko Drive site, along with the Woodlands Industrial Park E2/E5 site, is to support the government’s initiative to turn Woodlands into a regional commercial and industrial hub.

While the number of reserve list sites remained the same at seven, the total GFA offered shrunk from 2.1 million sq ft in 2H2018 to 1.8 million sq ft in 1H2019.

The stable confirmed list supply will lend support to the industrial market in the short to medium-term. In addition, a recent study by MTI found that the value added from US-China bilateral exports only comprised 1.29% of Singapore’s GDP in 2017. Singapore might even experience some benefit as some companies are contemplating moving a portion of their manufacturing base out of China to South-East Asia. While the low-cost production lines are expected to move to destinations such as Vietnam and Thailand, high-tech manufacturing activity could conceivably make its way to Singapore due to the requirement for a skilled workforce. This would boost demand for high-tech and business park spaces in the coming year. Factory rents could see an increase of 0.5%, while warehouse rents may rise by 1.0% as demand for warehouses has picked up due to rising competition in the e-commerce space.