Will industrial real estate market weather global headwinds

The leasing volume in the industrial sector has moderated to 3.5% YoY in Q1 2022.

Despite moderation in leasing and sales and higher vacancies reported in the first quarter (Q1) of 2022, Savills believe that the industrial segment would be the “most resilient” amongst real estate industries in the face of multiple economic challenges such as high inflation, worldwide energy crunch, and the Russia-Ukraine conflict.

In Q1 2022, the quarterly leasing volume of the industrial rental market slowed to 3.5% year-on-year on the back of fewer tenancies signed for the single-user factory segment which was down to 39.7% from 63.0% in the fourth quarter of 2021.

Vacancy rates for single-user factories and warehouses also inched up by 0.2% percentage points (ppt) quarter-on-quarter (QoQ) to 9.6% QoQ, and 0.3% ppt to 9.7% QoQ, respectively.

Meanwhile, strata industrial sales activity fell 8% from 460 transactions in Q1 2021 to 423 transactions in Q1 2022.

These downfalls, however, do not mean that the segment would not be able to weather the global headwinds battering Singapore. 

Savills said the industrial segment will be supported by the demand for modern warehouse facilities and high-specification industrial facilities moving forward.

A proof of this demand is the health pre-commitment levels of upcoming modern warehouse developments such as 2 Pioneer Sector 1 (2PS1) which is more than  70% pre-committed, said Savills.

"As the supply of modern warehouse facilities with quality specifications is expected to remain limited in the near term due to construction delays, demand for such high-specification facilities are expected to hold up overall rental growth," the expert explained.

Amongst types of industrial properties, Savills said warehouses and logistics will "better weather" risks such as the global semiconductor supply crunch, rising labour costs,  elevated commodity prices, and higher business costs which can, in turn, curtail manufacturing activity and any expansion of footprint.

"The demand for modern warehouse facilities coming from new economy industries likely to stay firm," said Savills, adding that rents for prime warehouse properties will likely grow by up 5% in 2022.

Meanwhile, rent for prime multiple-user factories and warehouse and logistics properties is expected to grow by up to 2% and 5%, respectively.