Industrial Property Market Shifts Lower Gear Bright Spots Remain
On December 4, VisionPower Semiconductor Manufacturing Company (VSMC) held a groundbreaking ceremony for a new state-of-the-art wafer manufacturing facility in Tampines. The facility, which is expected to begin initial production in 2027, is projected to produce 55,000 wafers per month by 2029 and create approximately 1,500 jobs. VSMC is a joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors, with a 60:40 ownership split.
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But VSMC is not the only company expanding in the semiconductor industry. In March, Japan’s Toppan Holdings started construction on a new factory in Jurong Lake District to produce semiconductor packaging materials. This project is estimated to cost $450 million.
According to Leonard Tay, head of research at Knight Frank Singapore, the increase in production and R&D facilities in Singapore is aimed at boosting supply chain resilience in the semiconductor industry. He adds that Singapore’s stability in the face of geopolitical tensions in other regions makes it an ideal global production hub for semiconductors and chips.
The global semiconductor industry has rebounded after a downturn in 2023 caused by soft demand and high supply. According to research by London-based consultancy Omdia, the industry recorded a 26% year-on-year increase in revenue for the first three quarters of 2024, following a 9% drop 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, after two consecutive quarters of contraction. This growth was primarily driven by the electronics cluster, fuelled by strong demand for smartphone and PC semiconductor chips.
However, the growth in industrial property rents in Singapore has slowed down compared to the previous year. While the JTC All Industrial Rental Index has risen for 16 consecutive quarters since 3Q2020, the growth has progressively slowed down, with a 1.7%, 1%, and 0.3% increase in the first three quarters of 2024. This is indicative of a more cautious sentiment among occupiers due to an uncertain macroeconomic environment. Occupiers have also been more prudent with their budget constraints and have valued flexibility in adapting to changing market dynamics.
The industrial property market in Singapore has experienced mixed activity in terms of leasing, with some segments remaining resilient while others have shown signs of slowing demand. In the multiple-user factory and warehouse segments, rental growth has remained steady due to stable occupancy rates. However, in the single-user factory segment, demand has softened, resulting in both rental and occupancy rates falling in the third quarter of 2024. Similarly, business park rents have also dipped, despite a marginal increase in occupancy rates.
On the other hand, the industrial sales market has been more active, with several large deals taking place in the second and third quarters of 2024. These include the sales of BHL Factories, Kian Ann Building, and a single-user factory at Pandan Road. The market received a further boost in the third quarter with several large deals, including the acquisition of a $1.6 billion portfolio of seven industrial assets by a joint venture between Warburg Pincus and Lendlease Group.
However, Savills Singapore’s executive director of research and consultancy, Alan Cheong, believes that these big-ticket industrial deals may be a one-off occurrence. He expects industrial property sales to taper down in 2025, with each big transaction likely to be below $1 billion.
Despite the influx of supply in the coming years, demand remains healthy for multiple-user factories, centrally located food factories, logistics spaces, and the electronics and advanced manufacturing sectors. However, business park rents are expected to continue facing pressure due to flexible working arrangements, leading to companies downsizing their footprint and looking for more cost-effective workspaces. Overall, rental and price growth is expected to slow down in the near term due to a supply-demand imbalance.