Industrial rents to cool in 2026 as vacancies near 10%

This is despite strong warehouse demand.

Singapore’s industrial sector is expected to see rental growth moderate in 2026, as islandwide vacancies hover near 10%, according to Morningstar Equity Research.

Industrial REITs recorded the sharpest decline amongst all S-REIT sectors, retreating 9.64% as of 11 March 2026, reflecting broader market sensitivity to geopolitical developments.

The correction was triggered by tensions in Iran, which pushed energy prices higher and reinforced a “higher-for-longer” interest rate environment that weighed on investor sentiment.

Morningstar noted that despite the selloff, current valuations remain attractive for investors who are focused on the sector’s structural drivers and long-term growth potential.

Leasing demand continues to be supported by capital expenditure related to Artificial Intelligence and the electronics sector, with the Electronics PMI consistently outperforming the broader Singapore PMI.

Prime logistics and warehouse facilities are seeing strong demand from third-party logistics providers and electronics firms, reflecting the ongoing structural need for modern industrial space.

Warehouse vacancy improved in the fourth quarter of 2025, whilst factory vacancy saw a slight uptick, indicating some divergence in sub-sector performance.

Covered industrial REITs such as MLT, MIT, and CLAR have maintained occupancy rates above the islandwide average, highlighting their resilience relative to the broader market.

The industrial supply pipeline for 2026 to 2028 is projected at approximately 12.9 million square feet (sq ft), broadly in line with the 10-year historical average of 13.3 million sq ft, which should help limit oversupply concerns.

Precommitted leases for new factory and warehouse developments are expected to further mitigate potential risks from additional supply entering the market.

Business park vacancies remain elevated, particularly in “Rest of Island” locations, and rents for city fringe and suburban business parks are expected to stagnate for the next 18 months.

Morningstar projected that absorption of the current excess business park space is likely to take around two years, underlining the sector’s moderate growth outlook.