Resilient leasing activity to boost property investment interest in sector, say observers

WHILE most segments of the Singapore property market have been impacted negatively by the Covid-19 outbreak, leasing demand for warehouse space has been resilient in the past three months – on the back of national stockpiling efforts, and a surge in online shopping and e-commerce activity, among other factors.

The leases being signed are mostly short-term, ranging from six months to two years, said Brenda Ong, head of logistics and industrial at Cushman & Wakefield Singapore. “As vacancies tighten in warehouse buildings, some landlords have already started to raise asking rents,” she told BT.

In the first four months of this year, leasing activity for warehouse space has fared relatively better than in the other segments of the Singapore industrial property market, as JLL’s analysis of data from JTC’s J-Space portal as of June 11 shows.

Tay Huey Ying, head of research and consultancy in Singapore at JLL, said: “During this period, leasing demand for logistics/warehouse space has been driven mainly by renewals and increased activity involving short-term leases of up to one year to accommodate medical supplies, food and consumer items (for example, from e-retailers), as safety concerns and movement controls fuelled a spike in e-commerce.”

Rimon Ambarchi, head of industrial and logistics services for Singapore and South East Asia at CBRE, said: “Landlords of good-quality, ramp-up logistics facilities are the biggest beneficiaries at the moment as their spaces are most sought after. As these spaces are now full, demand is spilling over to conventional, cargo-lift warehouses.”

He estimates that the average occupancy for a basket of 60 ramp-up logistics facilities (totalling about 32 million sq ft in net lettable area) which he tracks rose to 98 per cent as at end-May, from 93 per cent at the end of last year.

“All signs point to rents of ramp-up logistics facilities posting growth this year, after declining from 2015 to 2019,” Mr Ambarchi said. This will be supported by a relatively constrained supply pipeline for logistics properties for the foreseeable future, he added.

JTC’s warehouse rental index – which had eased 19.6 per cent from its peak in Q4 2013 to Q3 2019 – posted modest quarter-on-quarter gains of 0.1 per cent and 0.2 per cent in Q4 2019 and Q1 2020 respectively. Based on its analysis of JTC stats, CBRE forecasts that the average annual net supply of warehouse space on the island from 2020 to 2023 will be 1.78 million square feet – or 40 per cent of the 4.42 million sq ft 10-year historical average from 2010 to 2019.

Cushman & Wakefield’s Ms Ong said buildings that are seeing increased leasing demand for warehouse space include Ascendas Reit’s 21 Jalan Buroh and 40 Penjuru Lane; and Mapletree Logistics Trust’s 21 Benoi Sector and 76 Pioneer Road. Other examples include ESR Reit’s 6 Chin Bee Avenue (which has cold store facilities) and 8 Tuas South Lane; and Aims Apac Reit’s 20 Gul Way.

Ms Ong said the pickup in warehouse space demand began in March, following a surge in demand for items such as face masks, hand sanitisers and disinfectants – to combat the spread of the virus – as well as food items. The onset of the “circuit breaker” partial lockdown in April and subsequent closure of most retail outlets further fuelled the trend of consumers buying goods online for delivery to their homes.

The government-led efforts to safeguard against potential disruptions to supply chains, including boosting the stockpile for basic necessities such as rice, have also led to increased requirements for storage space, she added.

Supermarket chains and distributors of dry groceries and frozen foods have also been stocking more goods in Singapore. Hence more space at cold-store facilities is being sought.

Several third-party logistics (3PL) players have also been activated to help manage the storage and flow of goods for supermarket operators and other parties, Ms Ong noted. “3PL players who don’t own buildings in turn look to landlords of logistics buildings for space to lease.”

Summing up, CBRE’s Mr Ambarchi says: “Demand for warehouse space is emanating not just from government stockpiling efforts but a wide variety of sources such as food storage, e-commerce and inventory buildup from various manufacturing segments including the petrochemcial sector.”

Market watchers generally do not think that the increased absorption of warehouse space is a flash in the pan. “Although some take-up is short term, much of the demand is going to be structural and long term,” according to Mr Ambarchi.

“Risks to supply chains caused by Covid-19 and ongoing geopolitical issues will create a greater need for local production (including indoor farming) and storage.” The strategy of stockpiling essential food items and medical equipment and supplies, for example, is likely to continue in the long run, he added.

Ms Ong noted that Covid-19 has accelerated the adoption of e-commerce. “With consumers becoming more savvy ordering online directly from distributors, demand for warehouse/logistics space from distributors will remain strong.”

Market observers expect the resilient leasing activity for warehouse/logistics space to boost property investment interest in the sector.

“Logistics/warehouse space is becoming one of the favoured assets amongst institutional investors,” said Ms Ong.

She highlights that Sydney-headquartered logistics property group Logos has committed to building more warehouse space such as the facility at 4 Pandan Crescent catering to e-commerce tenants. Last month, Logos announced that it has partnered Singapore-listed CSC Holdings to redevelop 2 Tanjong Penjuru Crescent into a six-storey ramp-up warehouse, at an estimated total development cost of S$108 million.

Mr Ambarchi, too, expects continued interest in logistics assets from Singapore industrial Reits and Pan-Asia core funds that like the defensive income-based returns that the sector provides. “Demand is also likely to come from sovereign wealth funds, insurance funds and traditional office and retail investors looking to diversify their portfolio,” he said.

Last month, CBRE brokered the sale of 11 Sunview Way, a logistics facility in Jurong with a gross floor area of 404,000 sq ft, to DWS, the asset management arm of Deutsche Bank.


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