Industrial landlords may have to lower rents as supply outweighs demand – expert

There is an average annual supply of 1.0 million sqm coming onstream between 2024 to 2026.

With new supply outweighing demand in the industrial property sector, an expert said landlords, especially of new projects, might have to give in to lower rents to retain or attract new tenants.

“With weaker demand relative to new supply, there is likely to be lower leasing interest and activity,” Colliers said.

"As such, occupancy and rental growth is expected to continue to ease," Colliers added.

Cushman and Wakefield shared a similar sentiment, saying: "Market friction is increasing, and rental growth could slow going forward, as tenants are increasingly resistant to rising rents."

Data from Huttons showed that another 2.2 million sqm of industrial space will be completed in 4Q 2023 and 2024.

Colliers added that between 2024 to 2026, there will be an average annual supply of 1.0 million sqm coming onstream, exceeding the average annual demand of 0.7 million sqm per year over the past three years.

With increased supply coming in 2024 and an uncertain economic backdrop, CBRE said future rental growth will likely slow, particularly for segments that are seeing higher supply.

CBRE noted that occupier sentiment had already turned cautious in 3Q23, with most leasing activity being driven by renewals and relocations.

"Given the economic backdrop, the preference by occupiers is to temper expansionary activity and consolidate their real estate portfolio," CBRE said.

Colliers shared a similar sentiment, saying there will likely be more "divestments or refurbishments of older industrial assets as corporates look to free up capital, and as REITs look to rejuvenate their portfolios."

Whilst industrial leasing enquiries have quietened in recent months, Cuhsmand and Wakefield remain "sanguine that leasing activities could pick up towards the end of this year alongside an improving manufacturing economy."

"Even though manufacturing output and contribution to GDP contracted during the year, industrial real estate indicators of occupancy levels, prices and rents have been resilient for most industrial property types, weathering the challenges of falling exports, supply chain uncertainty and a gloomy global manufacturing outlook. Although not out of the woods yet, there are some early signs that the outlook by the end of 2023 will be more hopeful for manufacturing than at the start of the year," Knight Frank commented.

Collers added that there are continuous " investments into new facilities in Singapore, which will help support the overall industrial sector."
 
"New builds are expected to lead rental growth as they are more likely to be able to meet the business requirements of high-tech industries such as biomedical and advanced manufacturing. With the improvement in industrial indicators and business sentiments, industrial demand could just turn a corner early next year," Colliers said.