Fall in Industrial Property Rent During Covid 19

Fall in Industrial Property Rent During Covid 19

Fall in Industrial Property Rent During Covid 19

Singapore based real estate giant, EdgeProp reported a fall in industrial prices island-wide of 0.4%. This figure is compared to the previous quarter, overall rents in the industrial sector dropping by 0.1% q-o-q. These latest figures are based on the statistics released on April 23 by JTC.

Impact of Covid-19 on the Rental Sector

When interviewed Brenda Ong, the head of industry and logistics at Cushman& Wakefield stated that the drop in rents and prices does not wholly reflect the impact that Coronavirus has had on the sector. When looking at the figures for this quarter, it must be taken into consideration that many transactions were carried out before Covid-19 and more still before the stricter social distancing measures were put into place in April.

The rental index for single-user factories dipped by 0.2% quarter-on-quarter, and that of multiple-user factories by 0.4%

Head of research of Southeast Asia at CBRE stated that the drop on rents is an indication of weakening sentiment, these sentiments being centered on the last part of the quarter. What this means is that these declines will carry on in the future and that the general outlook for the market will be very challenging indeed.

Further Drops in Factory Rents

It is not just possible but indeed very likely that in the future factory rents will experience further recline before recovery. This decline is predicted to be steeper, and set against a backdrop of disruptions in the supply chain. Included in these figures should be the existing vacancy that stands at a volume of 39.95 million square feet. On the other hand, rents for warehouse space will be partially cushioned by a short-term demand for space and by a limited supply pipeline. The short-term need for space however is not predicted to carry on into the next quarters, meaning that the real figures will only really emerge at the end of the second quarter of 2020, or indeed when the pandemic is deemed to be over.

Industrial Occupancy Rates

The rates of occupancy within industry are not too dissimilar from the fourth quarter of 2019, with the level still being high and at 89.2%. On the other hand, sales of both warehouse properties and factories have cooled. In the first quarter of 2020 there were only 179 transactions, this being a figure that has never been so low, since the 1st quarter of 2009 when just 161 sales were recorded.

The general consensus of opinion is that sales volumes will remain muted, as people simple adopt a “Wait and See” approach. Ong went on to say that due to the strict social distancing that has been in place during the last two months, the industrial market will continue to trend lower throughout the course of the year.

Expansion and Relocation Plans Shelved

Head of JLL Singapore consulting firm Tay Huey Ying reported that during the first two months of 202o there was a firm demand for quality spaces in the most popular business parks. During this same period, at the start of the first quarter of 2020, there was also an increase in activity in the warehousing market for shorter term leases. This shift in activity was due to the need to accommodate consumer items and medical supplies. A spike in e-commerce was also noted during this time. However, by the end of March, plans for relocation and expansion were in the most part shelved by industrialists. Instead of carrying out expansion or relocation plans, industries planned to renew existing leases as well as submitting requests for rebates on rent. With the future being so unsure, and there being no real timelimits to the state of alarm or an end date for the pandemic, business owners are erring on the side of caution. Now is not the time to think of expansion or relocation, as for many, there is no set date where production will return to normal, or indeed to what will be deemed the “new normal”

Recession in Singapore

Ong of Cushman& Wakefield has also predicted a likely recession for Singapore. Industrial rents may however be more resilient than the other local sectors. Within the industrial markets, bright spots may be seen in e-commerce, logistics, biomedical, and distribution companies. This predicted recession will no-doubt be a world-wide phenomenon, the poorest countries suffering most and falling into an even steeper recession.

During the height of the global recession of 2009, central region office rents fell by an astounding 26.1% between the last quarter of 2008 and the 3rd quarter of 2009. During the same time period, industrial rents only dropped by 16.8%. The bleak times of 2008 and 2009 are something that we had hoped were now in the past, forgotten, and never to be seen again. However, with the COvid-19 Pandemic, what we will see is a different type of recession that is different from the one we experienced just over a decade ago.

The pandemic is predicted to accelerate smart manufacturing and automation in Singapore. What this means is that in the future there will be less and less dependency on human workers. Ong stated that in order for this to become the future in Singapore, post Covid-19, there would be a higher demand for high spec factory spaces. What this means is that smaller and more local factories in Singapore and indeed across the globe will be pushed out of business. As the rules for de-escalation unfold across the globe, it is the smaller businesses that will suffer. It is the small business owners who cannot afford all the necessary alterations to his business. It is is smaller factories that cannot afford high-spec equipment and that rely on factory workers that will suffer most.

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