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Cushman & Wakefield Comments on JTC Q2 2023 data

Brenda Ong • 28/07/2023

Amid tight supply and inflationary pressure, overall industrial prices and rents edged up by 1.5% qoq and 2.1% qoq respectively for the 11th consecutive quarter in Q2 2023. In H1 2023, industrial prices and rents have risen by 3.0% and 4.9% YTD respectively.

Overall industrial vacancy rate fell by 0.3% points to 10.9%, a reversal from the past three consecutive quarters of increase. Net absorption outweighed new supply as tenants moved into their newly completed premises. Net absorption was driven by the multiple-user factory and warehouse segments, which saw their vacancy rates declined to 10.1% and 9.0% respectively. On the other hand, business park space witnessed negative net absorption and vacancy rates rose to 19.4%, the highest level since Q4 2014 (20.2%), driven by older outlying business parks as they could no longer meet new economy tenant requirements. Given rising flight to quality and sustainability, coupled with limited new industrial supply, more asset enhancements or redevelopments of ageing industrial assets are anticipated, adding pressure on near-term supply. Existing owner occupiers may look towards sale and leaseback arrangement or joint development.

Positive rental growth was experienced across various property types, of which multiple-user factory and warehouse recorded the strongest rental growth of 3.0% qoq and 1.4% qoq respectively in Q2 2023. Resilient demand from third-party logistics (3PL) players continued to support the warehouse market amid a tight supply situation, though performance will depend on location attributes and building specifications. While multiple-user factory’s rental growth was similar to previous quarter, the pace of increase for single-user factory (1.2% qoq) has moderated; the manufacturing slowdown and lacklustre export performance, which coincide with a surge in factory supply coming forth this year, is expected to temper factory rental growth. Business park rents grew by 1.3% qoq, driven by newer business parks developments which are sought after by tech and life science occupiers seeking well-located and cost-efficient spaces.

Buying demand for industrial assets picked up slightly in the quarter. Industrial volumes (based on caveats lodged) rose by 24.0% qoq in Q2 2023. Based on our analysis of caveats lodged during the quarter, the bulk were multi-user factories, freehold tenure assets and strata units.

Investor interest for industrial assets is expected to remain healthy, especially for bite-size deals such as strata units or small freehold industrial sites, as well as niche asset classes such as data centres and cold chain facilities. Increasing spillover investment demand, especially from foreign investors, for industrial assets is anticipated following the latest round of property cooling measures. Amid the current high interest rate environment, REITs may divest their assets to deleverage, presenting more opportunities for investors to acquire institutional grade industrial assets, which are otherwise tightly held.



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