SINGAPORE - Rents of multiple-user factory space continued to fall in the fourth quarter of last year, according to new research out by DTZ on Tuesday (Jan 12).

Average monthly gross rents for first-storey and upper-storey factory space fell by 2.3 per cent and 2.9 per cent from the third quarter to $2.10 per sq ft and $1.65 per sq ft in the fourth quarter, it found.

"This was the second consecutive decline in 2015, as landlords felt the impact from the contraction in net demand for multiple-user factory space," said DTZ.

For the whole of 2015, monthly rents of first-storey factory space are down 4.5 per cent while that of upper-storey factory space are down 5.7 per cent.

According to JTC's statistics, net demand for multiple-user factories fell from 1.1 million sq ft in the second quarter of last year to 872,000 sq ft in the third quarter, DTZ noted.

"The fall in demand for factory space was largely due to the weaker manufacturing sector arising from falling orders from the domestic and overseas markets. According to the latest Purchasing Managers' Index in January 2016, the manufacturing economy has contracted for six consecutive months since June 2015," it noted.

The fall in rents for such space is also due to excess supply in the market.

As at the third quarter, the total supply for multiple-user factory space is expected to be 4.2 million sq ft for the whole of 2015, which exceeded the 10-year annual average demand by more than a million sq ft.

"With 4.6 million sq ft of multiple-user factory space coming into the market in 2016 amid a weaker economic environment, it is anticipated that industrial rents will trend downwards this year," said DTZ.

Besides the multiple-user factory market segment, business parks and hi-tech industrial space saw declines in rents in the fourth quarter as well.

This was the first time rents of business parks and hi-tech factory space fell since the third quarter of 2012.

Average monthly gross rents of hi-tech industrial space dipped by 1.5 per cent from the third quarter to $3.25 per sq ft in the fourth quarter.

Likewise, monthly rents of business parks fell by a greater 2.4 per cent from the third quarter to $4.98 per sq ft.

Overall though, rents of hi-tech industrial space still recorded an increase of 1.6 per cent from 2014 to 2015, albeit at a lower rate as compared to the 3.3 per cent and 3.2 per cent growth in 2013 and 2014 respectively.

On the other hand, rents of business parks fell slightly by 0.4 per cent for the whole of 2015, in comparison to the 6.8 per cent increase from 2013 to 2014.

In the first half of 2015, demand for business park and hi-tech industrial space was supported by companies substituting quality business park space for office space to reduce cost. For example, Google will be moving out from the Central Business District to Mapletree Business City II upon its projected completion in 2016.

"However in the third quarter, demand for business park space fell to 280,000 sq ft from 355,000 sq ft in the second quarter as uncertainty in the economic climate persisted," said DTZ.

Rents of business parks in 2016 are expected to face greater downward pressure with 1.5 million sq ft of lettable business park space coming on board in 2016, along with subdued business confidence.

Additionally, the softening of office rents and projected completions of office developments in the Central Business District in 2016 will exert further pressure on rents of business parks.

In 2016, the recovery of the Chinese economy from its recent slowdown will be of key concern to manufacturing companies and their demand for industrial space.

Dr Lee Nai Jia, Regional Head (SEA) of Research at DTZ, noted: "Most of the manufacturing companies are export-based and will be susceptible to external shocks, particularly from China, Singapore's largest trading partner. Hence, most observers are closely monitoring the economies of China and its neighbouring countries and whether they will rebound this year. If the Chinese economy recovers, Singapore's exports and manufacturing economy will receive a boost, which will result in heightened demand for industrial space."