Cushman & Wakefield Comments on 1st Quarter 2024 JTC Data

Overall industrial rents continued to rise by 1.7% qoq for the 14th consecutive quarter in Q1 2024. However, rental growth is starting to slow as tenants show resistance to higher rents amidst still-high interest rates and growing business costs. Also, the increase in rents were likely driven by newer developments given higher development costs. Overall industrial vacancy rate edged up by 0.3% points to 11.3%, the highest level since Q3 2017, as net supply outweighed net demand. Nonetheless, a broad-based rental growth was recorded across the various property types in Q1 2024. Apart from multiple-user factory which experienced slower rental growth compared to previous quarter, all other property segments saw faster rental growth. Both single-user factory and business park recorded the strongest rental growth of 2.1% qoq respectively, driven by newer stock amid flight to quality, followed by 2.0% qoq rental growth for warehouse. Multiple-user factory rents rose by a slower pace of 1.3% qoq. 

There is a current mismatch between landlord expectations and tenants. While there is a persistent flight to quality, some tenants have been deterred from higher rents at newer industrial developments. Landlords have also stuck to their asking rents given higher development costs. As such, leasing activities have stayed muted. Many industrial tenants are choosing to renew rather than relocate, highlighting current CapEX constraints amidst a tight financing environment as companies become very cost conscious.

Leasing activities are expected to pick up in 2024 alongside an improving manufacturing economy. However, the manufacturing recovery remains fragile and moderate rental growth is expected in 2024 due to increasing tenant resistance, still-elevated financing costs and higher supply pipeline for most property types. 

Apart from multiple-user factory space which saw vacancy rates held steady at 9.5%, the other property segments saw higher vacancy rates. The warehouse was the only market witnessed positive net demand, underpinned by resilient demand from third-party logistics (3PL) players. Other markets such as single-user, multi-user and business park spaces saw negative net demand, which signals a fall in demand for space. Business parks, especially older projects in suburban areas, continued to face pressure as some tech occupiers have grown cost conscious and have right sized as they increasingly adopt hybrid work practices. Business Park vacancy rate rose for the sixth consecutive quarter to 22.0%, the highest level recorded since Q1 2011. 

Overall industrial prices fell 0.2% qoq following past 13 consecutive quarters of increase. Industrial volumes (based on caveats lodged) fell by 18.0% qoq or 10.5% yoy to 351 transactions in Q1 2024. Despite the fall in volumes, interest for industrial properties remains healthy due to their relatively higher yields and favourable long-term prospects. Assets with value-add potential are sought after, particularly for assets which can cater to emerging new economy industries such as self-storage, cold chain and data centers. While Q1 2024 industrial volumes have fallen, it remains higher compared to the quarterly average in 2019 of 310 units.