Industrial property sector set to face glut: Savills

It says influx of 40.4m sq ft of space over next few years will inevitably drag down prices

An oversupply of industrial property is looming, with about 40.4 million sq ft of factory and warehouse space set to be launched over the next few years, property consultancy Savills warned yesterday.

The influx will inevitably drag down prices, it said in a report.

There is a silver lining, however. The entry of innovative technology firms into Singapore will "refresh the industrial space" and eventually absorb the incoming supply of industrial property, said Savills Research senior director for Singapore Alan Cheong.

But that will take at least four years, with the demand-supply imbalance stabilising only in 2019 or so, he added.

The report noted that although factory output has been shrinking, the structure of the industrial sector is about to change, driven by factors such as the restructuring of regional supply chains and the growth of the digital economy.

Already, several industrial properties in the works are looking to cater to technology firms, with some seeing good take-up.

Singapore Post's centre in Paya Lebar is set to be transformed into an e-commerce hub, while Kingsland Data Centre opened its doors to almost full-occupancy last month, Savills noted.

Incubation hubs are also being planned to facilitate new age entrepreneurial businesses which will provide an additional boost to economic growth and employment.

The Government too is trying to attract international companies in the surface mount technology and 3D printing industries to set up operations here. "A lot of these companies will land in (state industrial landlord) JTC Corporation's lap, through introductions by the Economic Development Board," Mr Cheong said.

"Unfortunately for private sector landlords today, you have to go out and look for tenants, you cannot wait for them to come to you. But most private sector landlords won't have the means to reach out to companies in the United States and Europe and market their space."

But eventually, as such players set up operations in Singapore, a supporting industry of companies providing services to them will follow - and these supporting firms will take up the industrial spaces offered by private sector landlords.

However, "these plans will take time to gestate and in the near term, the industrial space market is still set to enter a period of oversupply over the next five quarters with an influx of 40.4 million sq ft of factory and warehouse space". Sales and rentals are already muted amid the slowing economic outlook.

Sales of strata factory units sank to a new low of 326 in the third quarter, Savills said - a drop of 28.4 per cent from the second quarter or 41.5 per cent lower than in the same period a year earlier.

Prices have been affected as a result - freehold property prices declined 0.7 per cent from the second quarter to $655 per sq ft, while prices of 60-year leasehold properties have fallen 0.4 per cent from the previous quarter to $483 per sq ft.

Thirty-year leasehold properties, however, have managed to continue chalking up price increases - their price tags rose 3.9 per cent from the second to the third quarter, to $385 per sq ft.

"Economic headwinds and labour constraints continue to be a drag on rental prospects," Savills added. "Rental transactions of factories and warehouses declined 12.3 per cent to 2,031 in the third quarter of 2015 from 2,317 deals in the preceding quarter."

Rents for factory and warehouse spaces are still "gridlocked" at $1.85 per sq ft per month while rents for high-tech industrial spaces are also stagnant, at $3 per sq ft per month.

A version of this article appeared in the print edition of The Straits Times on November 17, 2015, with the headline 'Industrial property sector set to face glut: Savills'. Subscribe