War risks trigger 'flight-to-quality' in Singapore industrial market

AI-linked prime assets outperform as logistics costs squeeze older business parks.

Singapore’s industrial property market is entering a more selective phase as geopolitical uncertainty and cost pressures begin to reshape occupier and investor behaviour, despite continued growth in the first quarter of 2026.

Analysts said the sector remains resilient, supported by manufacturing activity and structural demand drivers, but noted a clear shift away from broad-based expansion towards more cautious and targeted decision-making.

Knight Frank said businesses are increasingly focused on maintaining operational continuity amidst heightened volatility following the escalation of conflict in the Middle East.

“Even though some investors could adopt a more cautious stance and delay major acquisitions in view of the Middle East conflict, the prevailing low interest rate environment should encourage selective and opportunistic transactions,” Knight Frank said.

Wong Xian Yang, head of research Singapore & SEA at Cushman & Wakefield also pointed to growing caution amongst occupiers, particularly in segments such as business parks and warehouses where demand softened.

“Higher transportation costs are expected to prompt occupiers to increasingly prioritise well‑located logistics developments that can help reduce logistics expenses. We could see some stockpiling demand returning as occupiers remain cautious amid supply‑chain uncertainties and elevated volatility in energy prices,” Wong said.

Tricia Song, CBRE head of research, Singapore and Southeast Asia at CBRE observed that tenants are becoming more selective in their leasing decisions, with location and asset quality emerging as key differentiators. Song highlighted a continued “flight-to-quality” trend, where newer and higher-specification assets outperform older stock, particularly in the business park segment.

JLL similarly described the market as stable but moderating, with underlying demand supported by the electronics and semiconductor ecosystem. However, it cautioned that geopolitical tensions and elevated oil prices could feed into inflation and weigh on business sentiment in the near term.

Across the market, analysts noted increasing divergence in performance between segments. Logistics and higher-specification industrial assets continue to benefit from structural demand linked to electronics, semiconductors, and artificial intelligence-related investment.

In contrast, older or less competitive assets, particularly in some business park and warehouse segments, are facing greater pressure to retain tenants.

The shift towards selectivity is also reflected in occupier strategies. Knight Frank said businesses are reassessing their space requirements and exploring more cost-effective alternatives, including decentralised locations, as they respond to rising operating costs.

On the investment front, CBRE noted that capital continues to target industrial assets for their stable income characteristics, although investors are becoming more discerning in asset selection amid uncertainty.

Looking ahead, analysts expect the industrial market to remain on a growth trajectory in 2026, but at a more moderate pace. JLL forecasts rental growth of around 1% to 2% for the year, whilst Cushman & Wakefield similarly expects rents to increase by up to 2%. 

Knight Frank projects industrial prices to grow between 3% and 5%, reflecting continued investor interest.