Industrial Space sector facing over-supply risk

The rental estimates for industrial space for the 2015 Q4  for the final quarter of last year pointing to levels below those in the third quarter. This may signal more undercurrents in the sector as over-supply for industrial property looms.

Demand for factory space has weakened in line with the contracting manufacturing sector, amid fewer calls for business park units, given the uncertain economic climate.

However the demand for central area factory space appears firm.  The occupancy rate in the central area is about 95 %, with average rents maintained at about $1.80 psf.

Outlying areas, including Changi and Jurong, may face more challenges this year especially for the latter, for example, may be dependent on the beleaguered oil and gas industry.vFor multi-user factories in the East and West with a heavier concentration of manufacturers related to the oil and gas and marine sectors, monthly rents should fall 3 % to 5 % this year to around $1.30 psf. If not, occupancy levels may also fall from about 93% to 88 %.

Some bright spots for factory demand this year could come from companies in 3D printing, surface mount technology or those related to the growing e-commerce sector such as supply-chain management providers.
Meanwhile, rents for business parks and high-tech industrial space declined in the fourth quarter, the first time they have fallen since the third quarter of 2012.  Rents for high-tech space were up 1.6 % over 2015 but those for business parks fell 0.4 %.

Rents at business parks should face more downward pressure, with about 1.5 million sq ft of lettable space being completed this year. But in the near term, industrial real estate investment trusts (Reits) may still be partly shielded from these challenges.

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