Industrial Property Market Shifts Lower Gear Bright Spots Remain
On December 4, the US$7.8 billion ($10.5 billion) wafer manufacturing facility in Tampines by VisionPower Semiconductor Manufacturing Company (VSMC) officially broke ground. The plant, a joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors, is expected to begin initial production in 2027 and produce 55,000 wafers per month by 2029. This will create around 1,500 new jobs in Singapore.
VSMC is not the only player expanding its operations in Singapore, as Japan’s Toppan Holdings started construction on a new factory in Jurong Lake District in March to produce semiconductor packaging materials. This project is estimated to cost around $450 million.
According to Leonard Tay, head of research at Knight Frank Singapore, the increased investment in Singapore’s industrial sector is a response to growing concerns about the resilience of global supply chains amid ongoing geopolitical tensions. He states that Singapore’s stability makes it an attractive location for businesses to establish their production and operations.
The global semiconductor industry has seen a significant rebound from a downturn in 2023 caused by soft demand and oversupply. Research from London-based consultancy Omdia shows that the industry recorded a 26% year-on-year jump in revenue in the first three quarters of 2024. This is a stark contrast to the 9% decline in revenue recorded in 2023.
This rebound has also had a positive impact on Singapore’s manufacturing sector, which saw a growth of 11% year-on-year in the third quarter of 2024. This was mainly driven by the electronics cluster, fueled by strong demand for semiconductor chips used in smartphones and PCs.
However, this positive growth has not been reflected in the industrial property market, where rental growth has plateaued in 2024 compared to the previous year. Catherine He, Colliers’ head of research for Singapore, attributes this slowdown to the cautious sentiment among occupiers amid an uncertain economic climate. She also notes that occupiers prioritize flexibility to adapt to market changes due to budget constraints.
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Tricia Song, head of research for Singapore and Southeast Asia at CBRE, also highlights the impact of consolidation in the third-party logistics and e-commerce sectors on occupier resistance this year.
However, different segments of the industrial property market have shown varying levels of resilience in the face of these challenges. Multiple-user factory and warehouse segments have remained relatively stable, seeing rental growth in the first three quarters of the year. On the other hand, the single-user factory and business park segments have seen a decline in both rents and occupancy.
Meanwhile, there has been a significant increase in industrial property sales in 3Q2024, driven by several large transactions, including the sale of BHL Factories, Kian Ann Building, and a single-user factory at 47 Pandan Road. This has resulted in a sevenfold increase in industrial property sales in 3Q2024 compared to the previous quarter.
Despite this, Alan Cheong, executive director of research and consultancy at Savills Singapore, believes that these large industrial property transactions are likely a one-off. He predicts that while we may see a couple of large deals in 2025, the total value will likely be significantly lower than in 3Q2024.
Looking ahead, a significant influx of new industrial space is expected in 2025, which, coupled with weaker demand, could lead to an imbalance between supply and demand. As a result, rental and price growth are expected to taper in the short term, with estimates of 2.5% to 3.5% rental growth and 1% to 2% price growth for 2025.
Despite this, businesses in the electronics and advanced manufacturing sectors are expected to continue driving demand for industrial real estate in Singapore. Data centres are also expected to play a significant role in the industrial sector, with plans to increase capacity by at least 300 megawatts as part of the Green Data Centre Roadmap launched in 2024.
On the other hand, the business park segment is expected to face pressure as companies downsize their workspace in response to flexible working arrangements. However, demand for newer facilities in central locations is likely to remain strong and support this segment to some extent.