Weak manufacturing demand casts a pall over industrial property outlook

Vacancy rate has reached a near 12-year high.

Headwinds remain on the horizon for the industrial property market, as analysts see anemic global demand recovery in manufacturing exerting further pressure on rents and occupancies.

According to a report by Cushman & Wakefield, vacancy rate for single-user factory space has reached the highest since 4Q04. This could be due to the ongoing restructuring and consolidation among manufacturers, who have committed to more factory space a few years ago when the market was more resilient.

The recovery of the industrial rents may is seen to take a bit longer, with stabilization only expected in a 12- to 18-month period. With more industrialists struggling with high operating costs and low demand given the persistent uncertainties in the market, Cushman & Wakefield expects occupancies to continue growing amid record supply in the market.

Further, there remains a strong inclination for sectors which are still doing relatively well—like biomedical and petrochemicals—to snap up properties with higher building specifications. As such, hi-tech industrial space and business parks may continue to see some resilience in rents on back of limited supply.

Moving forward, the report urges caution given that manufacturing activities seem to point to green shoots for local manufacturers in the coming months, as the sector reversed the contractionary trend seen over the past 18 months before the recent uptick in activities. This is due to Singapore’s manufacturing landscape looking uncertain again as the latest news of Brexit has raised questions into the minds of consumers, corporates and investors.