Average monthly rental for Grade A office space falls to $10.30 psf in 3Q2023
A groundbreaking ceremony was held on Dec 4 for the construction of VisionPower Semiconductor Manufacturing Company’s (VSMC) new wafer manufacturing facility in Tampines, which is estimated to cost US$7.8 billion ($10.5 billion). The plant is expected to begin initial production in 2027 and produce 55,000 wafers per month by 2029, creating 1,500 jobs. VSMC is a joint venture between Taiwan’s Vanguard International Semiconductor Corporation and NXP Semiconductors from the Netherlands.
However, VSMC is not the only player expanding in Singapore. In March, Japan’s Toppan Holdings started construction on a factory in Jurong Lake District that will produce semiconductor packaging materials. The project is said to cost around $450 million.
These expansions reflect the trend of chipmakers and related businesses setting up new production plants and R&D campuses in Singapore to strengthen their supply chain resilience, according to Leonard Tay, head of research at Knight Frank Singapore. Singapore’s stability amidst ongoing geopolitical tensions in other parts of the world makes it a global production hub for semiconductors and chips.
The global semiconductor industry is recovering from a downturn in 2023 caused by softer demand and higher supply. Research by Omdia, a London-based consultancy, shows that the industry recorded a 26% year-on-year increase in revenue for the first three quarters of 2024, a reversal from last year’s 9% decline to US$544.8 billion for the whole of 2023.
This rebound has given a boost to Singapore’s manufacturing sector. After two consecutive quarters of contraction in the first half of the year, manufacturing output grew 11% year-on-year in 3Q2024. The electronics cluster drove this growth, buoyed by strong demand for semiconductor chips in smartphones and PCs, according to data from the Ministry of Trade and Industry.
Despite the overall strong performance, the industrial property market has shown signs of slowing down. Industrial property rents in Singapore continued to rise in the first three quarters of 2024, but at a slower pace than before. From a 8.9% growth in 2023, the JTC All Industrial Rental Index grew 1.7%, 1% and 0.3% quarter-on-quarter in 1Q2024, 2Q2024 and 3Q2024 respectively. This is indicative of a more cautious sentiment among occupiers in an uncertain macroeconomic environment. With capex and budget constraints, occupiers are being more prudent and prioritising flexibility to adapt to the changing market dynamics, says Catherine He, Colliers’ head of research for Singapore.
Tricia Song, head of research for Singapore and Southeast Asia at CBRE, notes that consolidation in third-party logistics and e-commerce has contributed to occupier resistance this year.
This trend has been more apparent in the single-user factory and warehouse segments, which have maintained resilience and enjoyed rental growth over the first three quarters of 2024, supported by stable occupancy rates.
On the other hand, the business park segment has seen a decrease in rents despite a marginal increase in occupancy. This has resulted in a decrease in rents in 3Q2024.
The industrial sales market saw more activity after a quiet start to the year, with several substantial transactions taking place in 2Q2024. These include the sales of BHL Factories at 2C Mandai Estate for $74 million, Kian Ann Building at 7 Changi South Lane for $63 million, and a single-user factory at 47 Pandan Road for $36 million. In 3Q2024, the market received further encouragement when several large deals were made, such as Warburg Pincus and Lendlease Group’s joint venture purchasing a $1.6 billion portfolio of seven industrial assets from Soilbuild Business Space REIT and ESR-Logos REIT’s acquisition of a 51% stake in an industrial site at 20 Tuas South Avenue 14 for $428.4 million. The result was a sevenfold jump in industrial property sales to $2.45 billion in 3Q2024.
Despite the strong performance in the last quarter, Alan Cheong, executive director of research and consultancy at Savills Singapore, thinks that it is likely to be a one-off occurrence. He says, “We may still see one or two large deals transacted in 2025, but unlike in 3Q2024, each would probably be significantly below $1 billion.”
JTC estimates that around 0.2 million sqm of new industrial space will be completed in 4Q2024. About 33% of the supply is business park space, followed by single-use factory space (31%), warehouse space (30%), and multi-user factory space (6%). According to Colliers, more space (1.6 million sqm) is slated for completion in 2025, almost double the average annual new supply of 0.9 million sqm over the past three years. This includes over 70% single-user factory space and warehouse space.
Despite the influx of supply, which will lead to a supply-demand imbalance, Knight Frank’s Tay remains bullish about the semiconductor industry. He expects it to continue expanding in Singapore, supported by growing electric vehicle and artificial intelligence requirements. Tay also believes that data centres will be an important aspect of the industrial sector as Singapore plans to increase capacity by at least 300 megawatts as part of the Green Data Centre Roadmap launched in May 2024.
Collier’s He believes that the demand for multiple-user factory space, centrally located food factories, and favored logistics locations will remain strong. She predicts rental growth of between 2.5% and 3.5% this year before tapering down to 0%–2% in 2025. Savills’ Cheong foresees a rental increase of up to 3% this year and price growth of 1%–2%.