Article:On Dec 4, the groundbreaking ceremony for VisionPower Semiconductor Manufacturing Company (VSMC)’s new $7.8 billion wafer manufacturing facility in Tampines took place. The plant, set to begin initial production in 2027, is projected to produce 55,000 wafers per month by 2029 and generate 1,500 new jobs. VSMC is a joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors. VSMC is not the only company expanding in Singapore, as Japan’s Toppan Holdings has also started construction on a semiconductor packaging materials factory in Jurong Lake District. This project is estimated to cost $450 million.VSMC and Toppan are among the many companies in the semiconductor and related industries that have chosen to set up new production plants and research and development campuses in Singapore. According to Leonard Tay, head of research at Knight Frank Singapore, this is due to Singapore’s stability amid ongoing geopolitical tensions in other parts of the world, making it a global production hub for semiconductors and chips.A rebound in the global semiconductor industry has also given a boost to Singapore’s manufacturing sector. After a slow first half of the year, where two consecutive quarters saw contractions, manufacturing output expanded by 11% year-on-year in the third quarter of 2024. Data from the Ministry of Trade and Industry shows that this growth was driven by the electronics cluster, fueled by strong demand for smartphone and PC semiconductor chips.Singapore’s industrial property market has also seen an upward trend in rents, which have been on the rise for 16 consecutive quarters since the third quarter of 2020, according to the JTC All Industrial Rental Index. However, compared to the 8.9% increase seen last year, rental growth has been slowing down. In the first, second, and third quarters of 2024, the index only grew by 1.7%, 1%, and 0.3%, respectively.This plateau in rents is reflective of a more cautious sentiment among occupiers, given the uncertain macroeconomic environment. Catherine He, Colliers’ head of research for Singapore, notes that occupiers have been more prudent, valuing the flexibility to adapt to changing market dynamics due to budget and capex constraints. Additionally, third-party logistics and e-commerce consolidation has also contributed to growing occupier resistance this year.However, the impact of these factors on the industrial property market has varied across different segments. Multiple-user factory and warehouse segments have been relatively resilient, registering rental growth across the first three quarters of the year due to stable occupancy rates. On the other hand, single-user factory and business park rents have seen declines in the third quarter, with rental prices dropping by 0.3% and 0.2%, respectively. The decrease in rents is attributed to softer demand, which has also resulted in a dip in occupancy rates in these segments.Industrial property sales have been more active, with a sevenfold increase in transactions in the third quarter of 2024, reaching $2.45 billion. This is due to a relatively slow start to the year, with several large deals taking place in the second and third quarters. Notable transactions include the sales of BHL Factories at 2C Mandai Estate, Kian Ann Building at 7 Changi South Lane, and a single-user factory at 47 Pandan Road. These transactions have been further boosted by other large deals in the third quarter, such as ESR-Logos REIT’s purchase of a 51% stake in an industrial site at 20 Tuas South Avenue 14 and Ho Bee Land’s sale of a 49% stake in Elementum, a biomedical sciences development at 1 North Buona Vista Link, to a Brunei sovereign wealth fund.According to Alan Cheong, executive director of research and consultancy at Savills Singapore, these big-ticket industrial deals are likely to be a one-off occurrence. He adds that while one or two large deals may still take place in 2025, each would probably be significantly below $1 billion. The incoming supply of industrial space, combined with weaker demand, is expected to result in a supply-demand imbalance in the near future. This will likely lead to slower pre-commitment and occupancy rates at upcoming and existing developments. As a result, rental and price growth are expected to narrow in the coming years. Overall industrial rental growth is projected to be between 2.5% to 3.5% this year, and rental prices are anticipated to ease to between 0% and 2% by 2025.Industrial demand drivers remain strong for multiple-user factories, centrally located food factories, and preferred locations for logistics space. Additionally, the electronics and advanced manufacturing sectors are expected to continue performing well and attracting investments. Furthermore, if the US Federal Reserve continues to cut lending rates in 2025, this could encourage more companies to deploy capex for growth and expansion. On the other hand, the business park segment is expected to face pressure as companies downsize their footprint and consolidate costs in response to flexible working arrangements. Savills forecasts a drop in business park rents, making them the only segment with a possible decline in rental growth.In conclusion, while the industrial property market may see a slowing down of growth in the near term, demand drivers and investments in key sectors are expected to support the market in the long run. The industrial property segment will continue to play a vital role in Singapore’s economy, and the market’s resilience will pave the way for opportunities amid an evolving leasing landscape.
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