Singapore’s industrial property leasing market recorded another quarter of strong rent growth in 1Q23 in spite of the prolonged uptrend and increasing macroeconomic turmoil.

JTC’s statistics released today showed the all-industrial rental index sped ahead, rising by 2.8% q-o-q in 1Q23, its fastest quarterly growth since the 4.4% recorded in 3Q13. This was led by the 3.0% q-o-q rise in rents of both single-user and multiple-user factory premises on the back of a rise in number of tenancies from 186 and 2,340 in 4Q22, to 212 and 2,385 in 1Q23, respectively, based on J-Space.

Warehouse rents also posted stronger q-o-q growth of 2.9% in 1Q23. This had likely been fueled by the persistent supply crunch as reflected in islandwide warehouse vacancy staying below the pressure point of 10% for the eighth consecutive quarter.

In contrast, rising interest rates and heightened macroeconomic uncertainties likely contributed to the second consecutive quarter of slower industrial price growth. According to JTC, the all-industrial property price index (based on prices of single-user and multiple-user factories) grew at a slower pace of 1.5% q-o-q in 1Q23, compared to 1.7% q-o-q in 4Q22.

We expect the resilient performance of the industrial property market against the external headwinds to ignite acquisition interest from investors looking to rebalance their portfolio with higher yielding assets such as logistics/warehouse properties in the rising interest rate environment.

Additionally, the fresh punitive residential market cooling measures announced on 26 April 2023, and which took effect from today, could channel some of the investment funds from family offices and HNWIs to other asset classes including industrial properties. This could lead to greater competition for the limited stock of investment grade industrial assets, such as freehold properties on privately-owned land, thereby underpinning price growth.

Given the resilience of the sector notwithstanding the intensifying macroeconomic headwinds, we are cautiously optimistic that industrial rents could outperform 2022, potentially chalking up growth in excess of 6.9% in 2023. On the other hand, surging interest rates and elevated macroeconomic headwinds could cap the full-year price growth to around 5-6%.