FUELLED BY THE AI BOOM
Singapore’s economy recorded a 6.0% yoy growth in Q1 2026, accelerating from 5.7% yoy growth in the previous quarter. Economic growth forecast for 2026 was maintained at between 2.0%-4.0% yoy. The Purchasing Managers’ Index (PMI) rose to 51.3 points in June, reaching the highest level since November 2018 and marking the eleventh consecutive month of expansion. Manufacturing output expanded by 13.0% yoy in May, driven by the electronics cluster, signifying the ninth consecutive month of growth.
STEADY H1 2026 RENTAL GROWTH
Supported by positive manufacturing sentiments, conventional factory rents outperformed and grew 1.2% qoq in Q2 2026, bringing cumulative growth for H1 2026 to 2.7% ytd. City fringe business park rents fell slightly by 0.1% qoq in Q2 2026, due to softening achievable rents observed at some of the properties in our basket, though it still rose by 0.6% ytd in H1 2026. Prime logistics rents remained flat in Q2 2026 and have grown by 1.5% ytd in H1 2026. Prime logistics rents are expected to grow by 2.0%-3.0% yoy in 2026, higher than 0.9% yoy in 2025, supported by constrained prime logistics supply, elevated development costs and resilient demand. Prime logistics take-up has remained steady, with sustained leasing activity observed at newly completed developments. The three newly completed prime logistics projects in 2025 have achieved an average take-up of around 80%. Prime logistics supply pipeline remains tight, with no new major prime logistics completions in 2026 and only about 450,000 sf expected to come onstream in 2027. Other industrial segments, including suburban business park, science park, high-tech factory and warehouse, have recorded moderate rental growth ranging between 0.4%-2.0% ytd in H1 2026.
AI-RELATED DEMAND TO DRIVE FLIGHT TO QUALITY
AI-related demand is expected to bolster occupier demand for high-tech factories, business parks and warehouses with temperature-control capabilities. As advanced manufacturing and digital infrastructure continue to expand, occupiers are likely to prioritise assets with superior specifications and sustainability features. This is expected to accelerate the flight to quality trend, supporting stronger demand for modern industrial space and potentially driving the redevelopment of ageing stock into higher-specification assets.
