Singapore multiple-user factory leases drive market activity as tenant relocations persist

Such leases rose 23.9% to 2,320 transactions during the quarter.

According to Savills, the leasing market remained active in Q1/2021, with leasing volume increasing for a third consecutive quarter by 1.3% QoQ and 21.2% YoY to 2,950 transactions. Among the property types, leases of multiple-user factories increased the most, rising by 23.9% YoY to 2,320 transactions. This may be due to tenant relocations and renewal of leases with some downsizing due to cost-cutting measures. 

Apart from multiple-user factories, Savills says rental transactions of other property types also rose on a YoY basis. The leasing volume of single-user factory units increased by 14.3% YoY to 184 transactions while for warehouses volumes grew by 11.5% from 400 in Q1/2020 to 414 in Q1/2021. Rental demand for warehouse space continued to be supported by logistics and e-commerce players as they looked to expand their operations, sourcing larger units to house their operations in a single location. 

Here’s more from Savills:

The overall industrial vacancy rate eased for a fourth consecutive quarter in Q1/2021, albeit a slower pace of 0.1 of a percentage point (ppt) QoQ to 10.0%, the lowest since Q1/2016, when vacancy rates were below 10.0%, at 9.9%. This was due to increasing demand as conditions in the manufacturing sector start to improve, as well as delayed completions. The QoQ decline of 0.5 of a ppt for multiple-user factory space outweighed the QoQ increases of 0.1 of a ppt in vacancy rate for single-user factory and warehouse space respectively. 

As the economic recovery broadens across various fronts, JTC’s rental indices reflected this with increases across all property types. The rental index of all industrial property grew by 0.6% QoQ in Q1/2021. Similarly, for Savills basket of industrial properties, the average monthly rent for prime multiple-user factories rebounded, increasing by 1.1% QoQ to S$1.72 per sq ft. This turnaround came after five consecutive quarters of decline and was led by the strong growth in the manufacturing sector. 

In the same light, the average monthly rent for prime warehouse and logistics3 properties continued to inch up further, albeit at a slower pace, rising by 0.5% QoQ to S$1.44 per sq ft. This was supported by strong demand for warehouse space from e-commerce, logistics, stockpiling and shifts in supply chains.

Sales market

In the strata sales market, after two consecutive quarters of increase, sales volumes declined 21.6% QoQ to 366 in Q1/2021. However, on a YoY basis, the transaction volume in Q1/2021 almost doubled from the 196 recorded in the same period last year. Demand came from local firms such as those in the disposable Tupperware and frozen food processing business. Local companies which had in the past leased space are now willing to purchase as they see attractive pricing in the market. Many of the local companies buying have benefited from the fallout from the pandemic. 

The improvement in the industrial market was observed with the JTC price index of all industrial properties registering a 0.9% QoQ growth for a second consecutive quarter. However, on a YoY basis, the price index recorded a decline of 1.3%. The 0.9% increase was largely led by a 1.1% QoQ growth in the price index of single-user factories, while multiple-user factories rose by 0.9% QoQ. From Savills basket of leasehold industrial properties, price movements were mixed during the quarter under review.

After four consecutive quarters of decline, prices for 60-year leasehold properties rebounded by 1.9% QoQ to S$432 per sq ft in Q1/2021. On the other hand, prices of 30-year leasehold properties fell for a sixth straight quarter, declining 2.5% QoQ from S$299 per sq ft in Q4/2020 to S$292 per sq ft in Q1/2021. More properties with shorter leases have been for sale in the market. Sellers of such properties do not see the need to hold on to their assets, particularly due to uncertainties arising from the pandemic. Separately, prices of freehold properties remained resilient, with a marginal QoQ increase of 0.2% to S$701 per sq ft