Why demand for factory space is easing in Singapore

Industrial sales declined 12.2% to S$773.1m in Q3.

Despite the moderation in overall industrial performance over the recent months, a Knight Frank report indicates Singapore remains a compelling destination for regional headquarters as well as a location for high-value manufacturing activities. 

“Many foreign companies diverted their attention towards the city-state as a location of security amid global uncertainty, leveraging on the competitive edge that the financial hub offers as well as the transparency and stability of its legal and regulatory framework,” the report added.

Here’s more from Knight Frank:

In Q2 2022, fixed asset investment (FAI) commitments in Singapore totalled S$6.3 billion, the highest on a quarterly basis since Q1 2020 when S$10.3 billion was secured. Manufacturing accounted for S$3.6 billion, which included S$2.9 billion of investments in the electronics sector. 

Examples of notable foreign businesses setting up base in Singapore recently include SOCOMEC, a leading global specialist in power management solutions, which will be opening its new Asia Pacific headquarters at the Meiban Industrial Building along Ubi Road.

In August, Pall Corporation broke ground on a US$100-million seven-acre state-of-the-art manufacturing facility to meet global demand for semiconductors. 

Easing demand for factory space 

Industrial sales totalled S$773.1 million in the third quarter, easing by 12.2% q-o-q and 5.0% y-o-y. Despite this, overall prices continued to trend upwards with an average price of S$444 psf, an increase of 2.4% compared to the previous quarter, together with increased FAI (Exhibit 1). 

Based on transactions, the Geylang and Woodlands Planning Areas were sought-after locations with 49 (S$72.5 million) and 47 (S$42.5 million) factory units transacted in the quarter, the majority being multiple-user factories. While the overall demand for industrial space declined, the improving construction and transport sectors driving output expansions in certain manufacturing clusters propped up sales activity in Q3. 

As such, the median rent for multiple-user factories was healthy at S$1.89 psf pm in July and August 2022 with 1,659 tenancies, compared to a median of S$1.76 psf pm in the same period a year ago (Exhibit 2). More businesses integrating and producing sustainable alternatives or products such as plant-based protein and bags could sustain leasing demand for multiple-user factory space that support these emerging business types. 

Market outlook 

The steady stream of investment commitments flowing into Singapore will continue to generate value and create more jobs as Singapore readjusts towards pre-pandemic normalcy. Coupled with the nation’s standing as a safe business destination, these could potentially serve as a shelter against unforeseen external shocks and the looming economic uncertainty. Industrial prices and rentals will remain stable, supported by the steady demand for space, and is enroute to grow 3% to 5% for the whole of 2022.