SINGAPORE - Poor outlook of the manufacturing sector and the contraction production output in November contributed to low demand for industrial space, said property consultant DTZ.

The lack of improvement in the sentiments among manufacturing establishments was also likely to contribute to the slow take-up rate in the third quarter of 2014, it said in a report on Jan 5.

According to the survey of business expectations of the manufacturing sector published by Economic Development Board in October, a weighted 85 per cent of the manufacturers expect the business outlook for the six months to March 2015 to remain the same as that from April to September 2014.

Although the Singapore Purchasing Managers' Index (PMI) rose from 49.7 in August to 51.9 in October 2014, factories output dropped by 2.8 per cent over the same month last year, DTZ noted.

The weak demand, coupled with an injection of 14.5 million square feet of factory space to the existing stock in the past three quarters of 2014, caused average rents for industrial space to drop by 1.3 per cent in the last quarter of 2014 compared to the previous quarter.

The demand for factory space in the first three quarters of 2014 fell to 4.8 million sq ft from 5.3 million sq ft registered for the same period in 2013.

Despite the weaker demand, rents in 2014 remained stable according to DTZ figures. Compared to rental levels in 2013, average monthly industrial rents for traditional industrial space inched up by 1.6 per cent in 2014 to $2 per square foot.

Meanwhile, demand for space in business parks and hi-tech space continued to increase.

Occupancy rates for business park space rose by 1.5 percentage points quarter-on-quarter and 7.1 percentage points year-on-year.

Average monthly gross rents of business parks and hi-tech space remained stable at $5 psf and $3.20 psf, respectively in the fourth quarter.

On a yearly basis, rents for business park registered the largest increase, at 6.8 per cent from the fourth quarter of 2013.

"Demand for business parks and hi-tech properties were more resilient in 2014," said Cheng Siow Ying, DTZ's executive director of business space.

"This is due to the increase in office rents, which motivated some qualifying occupiers to seek out more affordable options in these office-industrial hybrid spaces.

"Tenants prioritising on cost savings and good locations will be willing to pay higher rents for newer and better quality buildings such as those at one-north, Aperia and Mapletree Business City."