On December 4, VisionPower Semiconductor Manufacturing Company (VSMC) broke ground on a new US$7.8 billion ($10.5 billion) wafer manufacturing facility in Tampines. The new plant, set to start initial production in 2027, is expected to produce 55,000 wafers per month by 2029 and create approximately 1,500 jobs. VSMC is a joint venture between Vanguard International Semiconductor Corporation from Taiwan and NXP Semiconductors from the Netherlands. However, VSMC is not the only company expanding in Singapore. In March, Japan’s Toppan Holdings began construction on a new factory in Jurong Lake District that will produce semiconductor packaging materials. The company is investing an estimated $450 million in the project.
VSMC and Toppan are among the many chipmakers and related businesses setting up new production facilities and R&D campuses in Singapore to boost their supply chain resilience. According to Leonard Tay, head of research at Knight Frank Singapore, Singapore remains a global production hub for semiconductors and chips due to its stability amid ongoing geopolitical tensions in other parts of the world.
The global semiconductor industry has experienced a rebound, after a downturn in 2023 due to lower demand and higher supply. Research from London-based consultancy Omdia shows a 26% year-on-year increase in revenue for the first three quarters of 2024. This is a significant turnaround from the previous year, when revenue fell 9% to US$544.8 billion. This recovery has also had a positive impact on Singapore’s manufacturing sector. After a slow start to the year, with two consecutive quarters of contraction, manufacturing output grew 11% year-on-year in the third quarter of 2024. The electronics cluster drove this growth, fueled by strong demand for smartphone and PC semiconductor chips, according to data from the Ministry of Trade and Industry.
While the industrial property market in Singapore has experienced a continuous upward trend in rents, the growth has been slowing down in recent quarters. The JTC All Industrial Rental Index has risen for 16 consecutive quarters since 3Q2020. However, compared to the 8.9% rental increase recorded in 2023, the momentum has progressively slowed. In the first three quarters of 2024, the index grew by 1.7%, 1%, and 0.3%, respectively. This plateau in rents reflects cautious sentiment among occupiers in a uncertain macroeconomic environment. According to Colliers’ head of research for Singapore, Catherine He, occupiers have become more prudent, valuing the flexibility to adapt to changing market dynamics due to budget constraints. Tricia Song, head of research for Singapore and Southeast Asia at CBRE, adds that consolidation in the third-party logistics and e-commerce space has also contributed to occupiers becoming more resistant this year.
However, different industrial segments have been affected differently. The multiple-user factory and warehouse segments have stayed relatively resilient throughout the year, registering rental growth across the first three quarters, supported by stable occupancy rates. On the flip side, in the single-user factory segment, softer demand has led to both rents and occupancy slipping in the third quarter of 2024, marking the first rental decline since 3Q2020. Business park rents also decreased, despite a marginal rise in occupancy. This decrease in rents can be attributed to occupiers becoming more cautious due to capex and budget constraints, as well as consolidations in the third-party logistics and e-commerce space.
Despite the slower growth in rents, the industrial sales market has been more active. After a slow start to the year, sales activity picked up in the second quarter of 2024, with several significant transactions taking place. 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. The market received a further boost in the third quarter, with several large deals, such as the joint venture between Warburg Pincus and Lendlease Group acquiring a $1.6 billion portfolio of seven industrial assets from Soilbuild Business Space REIT, owned by Soilbuild Group and Blackstone. Another significant transaction was ESR-Logos REIT’s purchase of a 51% stake in an industrial site at 20 Tuas South Avenue 14 for $428.4 million. These deals resulted in a sevenfold increase in industrial property sales to $2.45 billion in 3Q2024. However, Savills Singapore’s executive director of research and consultancy, Alan Cheong, believes that these big-ticket industrial deals are likely to be a one-off event, and the market may still see one or two large deals in 2025, but much lower than $1 billion.
Despite a strong third quarter, JTC estimates that around 0.2 million square meters of new industrial space will be completed in the fourth quarter of 2024. In 2025, a further 1.6 million square meters of space is expected to be completed, almost double the annual average of new supply over the past three years. The new supply will mostly consist of single-user factory space and warehouse space. This influx of supply, coupled with weaker demand, is likely to result in a supply-demand imbalance, leading to slower pre-commitment and occupancy rates in upcoming and existing developments. As a result, rental and price growth are expected to narrow in the near term. Savills forecasts overall industrial rental growth to be between 2.5% and 3.5% and price growth to be between 1% and 2% this year. Similarly, rental and price growth are projected to slow down further to between 0% and 2% in 2025.
Despite the more muted outlook, demand remains robust for segments such as multiple-user factory space, centrally located food factories, and favored locations for logistics space. The electronics and advanced manufacturing sectors are also expected to continue performing well and attracting investments. According to CBRE’s Tricia Song, if the US Federal Reserve continues to cut lending rates, more companies may deploy capex to pursue growth and expansion. Additionally, Knight Frank Singapore’s head of research, Leonard Tay, remains optimistic about the semiconductor industry, which is expected to continue driving demand for industrial real estate in Singapore, supported by the growing demand for electric vehicles and artificial intelligence. Tay also believes that data centers will play a crucial role in the industrial sector, with Singapore planning to increase its capacity by at least 300 megawatts as part of the Green Data Centre Roadmap launched in May 2024.
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However, business park rents are expected to continue facing pressure as companies downsize their footprint to cut costs or optimize workspace in response to flexible working arrangements. Savills estimates rents to soften in this segment by 3% to 5% this year. Nevertheless, there is still strong demand for newer facilities in central locations, which should provide some support to the segment.