Cushman & Wakefield’s Analysis of Q2 2019 JTC Statistics

Singapore, 25 July 2019 - Despite the subdued manufacturing outlook, the industrial rental index for all industrial spaces rose marginally by 0.1%, supported mainly by the rental gains in the single user factory category, where the rental index rose by 0.5% over the preceding quarter. This marked the first quarterly increase in the index in 4 years since the first quarter of 2015. However, due to the worsening macro-economic conditions, the temporary rebound in the rental index is unlikely a sign that the industrial market is out of the woods.

The overall multiple-user factory rent also rose marginally by 0.1% q-o-q. The bulk of the rental gains materialised in the North and North-East regions, which saw larger increases of 0.5% and 0.4% respectively. This could be due to the increased demand for food factories in these regions, as the two regions account for 40% of the total number of food establishments. This is very much in line with the strong growth seen in the F&B sector, as more F&B players start to explore a more cost-effective centralised industrial food facility by tapping on lower industrial rents.

Leasing demand seems to be propped up by the multiple user factory category, which saw a net absorption of 67,000 sqm, although about 45,000 sqm of multiple user space was taken off the market in the same quarter. If the 45,000 sqm of space had not been taken off the market, that would have resulted in a higher multiple-user factory absorption of up to 112,000 sqm. This has resulted in a reduction of vacancy rates from 13.7% to 12.8%. For the second half of 2019, there is approximately 946,000 sqm of all industrial stock in the pipeline. Of which, 77% or 729,000 sqm of the space are committed to single-users. This could help to ease the downward pressure on rents and occupancies should the economy continue to deteriorate.

The warehouse market saw muted net absorption of 18,000 sqm, significantly lower than the net supply of 71,000 sqm. Business Parks experienced a marginal net absorption of 9,000 sqm on the back of a slight decrease in the net supply of 1,000 sqm. The muted demand could be a reflection of the US-China trade tension which has undermined business expansions and investment plans, resulting in a sharp slowdown in economic activities on the whole.

On the bright side, a number of global firms are still pouring investments into new facilities in Singapore. Corteva Agriscience opened its Asia-Pacific headquarters at Biopolis at the end of May 2019. It will conduct R&D to maximize crop yields in sustainable ways. Meanwhile, American medtech firm PerkinElmer launched its life science lab at JTC MedTech Hub on 2 May 2019 to manufacture detection and analytical instruments. In addition, German conglomerate Thyssenkrupp has plans to set up a Singapore Manufacturing TechCentre Hub later this year to unlock the potential of 3D printing solutions across various industries.

Dark clouds are looming for the industrial sector. Singapore’s overall economy grew at a sluggish pace of 1.2% y-o-y in 1Q2019, marking two consecutive quarters of economic growth falling below 2%. This was due to a 0.5%  y-o-y contraction of the manufacturing sector. The May manufacturing PMI decreased by 0.4 to 49.9, falling into contractionary territory for the first time in almost three years. Business confidence was impacted by the escalation of the US-China trade war and growing concerns over an impending US recession due to the inverted yield curve. Economists have also raised the possibility of Singapore slipping into recession in 2020 if macro-conditions continue to deteriorate. Industrial rents are expected to remain flat for the second half of 2019 and moderate in 2020 if the recession scenario materialises.

For Further Information Contact:

Christine Li
Head of Research, Singapore, SEA

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