Despite a weaker economic outlook, both overall industrial prices and rents continued to climb upwards for the 10th consecutive quarter, rising by 1.5% qoq and 2.8% qoq respectively. Overall industrial vacancy rate continued to increase for the third consecutive quarter to 11.2%, the highest level since Q2 2018, due to higher new supply which outweighed net absorption, of which negative net absorption was recorded for warehouse, business park and single-user factory. The fall in overall net absorption arises amid flight to quality as industrialists consolidate and right size their space requirements.
Both multi-user and single-user factories outperformed in Q1 2023 and recorded the strongest rental growth at 3.0% qoq, as factory rents continued to hold up despite the manufacturing slowdown. Warehouse rents rose by similar pace of increase by 2.9% qoq, largely driven by sustained demand from third-party logistics (3PL) players amidst very tight supply. Business park rental growth moderated to 0.6% qoq in Q1 2023, with modern and high-spec developments leading growth as they can meet business requirements and sustainability targets of new economy tenants.
Against an uncertain economic backdrop and increasingly cautious investor sentiment, industrial volumes (based on caveats lodged) fell further by 16% qoq in Q1 2023. However, investors remained keen on industrial assets due to their positive yield spreads and potential for capital appreciation. Following the announcement of increase in ABSD for residential properties, some investment demand could gravitate towards the industrial market, particularly for private industrial sites and strata units, both freehold and leasehold.
Industrial rental growth is expected to hold up this year, though performance will differ across property types. Due to its tight vacancies and low rental base, prime logistics could witness double-digit rental growth in 2023 as underlying demand from 3PL players remains surprisingly resilient, despite an easing of supply chain challenges and a weaker economic outlook. Given tight supply, most prime logistics occupiers are renewing their leases despite higher rents, and pent-up demand has continued to accumulate. The anticipated strong rental growth for prime logistics in 2023 comes on the back of high pre-commitments for major prime logistics supply completing this year. High-tech factories and business parks rents are expected to see moderate rental growth, with modern and high-spec developments leading growth as they can meet business requirements and sustainability targets of new economy tenants. Meanwhile, the manufacturing slowdown and lacklustre export performance coincides with a surge in factory supply coming forth this year, leading to a likelihood of slower rental growth of around 1.0% for conventional factories in general.