The industrial property market in Singapore has been seeing strong demand and growth potential in recent years, thanks to the country’s stable political landscape and robust economy. This has been reflected in the rising prices and rents for industrial properties, as well as an increase in new investments and developments in the sector.On December 4, VisionPower Semiconductor Manufacturing Company (VSMC) made a significant move by breaking ground on a new US$7.8 billion ($10.5 billion) wafer manufacturing facility in Tampines. This plant, which is set to begin initial production in 2027, is expected to produce 55,000 wafers per month by 2029 and create about 1,500 jobs. VSMC is a 60:40 joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors.However, VSMC is not the only player expanding their operations. In March, Japan’s Toppan Holdings began construction on a factory in Jurong Lake District that will produce semiconductor packaging materials. The project is estimated to cost around $450 million.Toppan Holdings and VSMC are just two of the many chipmakers and other related businesses that have been setting up new production plants and research & development campuses in Singapore in order to boost their supply chain resilience. This trend has been observed by Leonard Tay, the head of research at Knight Frank Singapore, who believes that “Singapore remains a global production hub for semiconductors and chips, [thanks to] its stability amid ongoing geopolitical tensions in other parts of the world.”The growth in the semiconductor industry has been accompanied by an overall rebound in the global semiconductor market, following a downturn in 2023 due to softer demand and higher supply. Research by London-based consultancy Omdia shows that the industry recorded a 26% year-on-year jump in revenue for the first three quarters of 2024 – a significant reversal from the previous year, when revenue decreased by 9% year-on-year to US$544.8 billion for the entire 2023 period.This rebound has also had a positive effect on Singapore’s manufacturing sector, which saw a sluggish first half of the year with two consecutive quarters of contractions, followed by an 11% year-on-year expansion in the third quarter of 2024. This growth was mainly driven by the electronics cluster, fueled by strong demand for smartphone and PC semiconductor chips, according to data from the Ministry of Trade and Industry.However, while the industrial property market has been performing well on the whole, there have been some mixed signals. While rents have continued to rise throughout the year, the growth has slowed compared to the previous year. According to the JTC All Industrial Rental Index, rents have been increasing for 16 consecutive quarters since 3Q2020. However, unlike the 8.9% rental increase recorded in 2023, momentum has progressively slowed. On a quarter-on-quarter basis, the index grew by only 1.7%, 1%, and 0.3%, respectively, in 1Q2024, 2Q2024, and 3Q2024.The plateauing rents could be an indication of more cautious sentiment among occupiers in light of an uncertain macroeconomic environment. JTC data shows that rental transaction volumes have also fluctuated throughout the year, with year-on-year contractions of 9% and 5% recorded in 1Q204 and 2Q2024. According to Catherine He, Colliers’ head of research for Singapore, “with capex and budget constraints, occupiers have been more prudent, valuing the flexibility to adapt to the changing market dynamics.”There has also been some resistance from occupiers in the industrial market, fueled by factors such as consolidation in the third-party logistics and e-commerce space. This has been pointed out by Tricia Song, the head of research for Singapore and Southeast Asia at CBRE, who believes that this resistance from occupiers has been a contributing factor in slowing growth in the industrial property market.However, the extent to which these factors have impacted different segments of the industrial property market has varied. For example, while the multiple-user factory and warehouse segments have stayed relatively resilient throughout the year, registering rental growth across the first three quarters, the single-user factory segment has seen softer demand, resulting in both rents and occupancy slipping by 0.3% quarter-on-quarter in 3Q2024. This marks the first rental decline since 3Q2020. Business park rents have also dipped, falling by 0.2% quarter-on-quarter in 3Q2024, despite a marginal rise in occupancy. This decrease in rents has extended the 0.1% quarter-on-quarter fall recorded in 2Q2024.On the other hand, sales activity in the industrial property market has been more active. After a quiet start to the year, there was an upsurge in activity in the second quarter, with several significant transactions taking place, such as the sale of BHL Factories at 2C Mandai Estate for $74 million in May, the sale of Kian Ann Building at 7 Changi South Lane for $63 million in June, and the sale of a single-user factory at 47 Pandan Road for $36 million in April. This growth continued in the third quarter, with several large deals taking place, including ESR-Logos REIT’s purchase of a 51% stake in an industrial site at 20 Tuas South Avenue 14 for $428.4 million, 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 for $272 million. This has resulted in a sevenfold jump in industrial property sales to $2.45 billion in 3Q2024, according to Alan Cheong, the executive director of research and consultancy at Savills Singapore. In a November research report, Savills attributed this leap in transactions to improved sentiment, following the US Federal Reserve’s interest rate cut in September, coupled with stronger performance in the manufacturing sector.Despite the strong performance in the last quarter, Cheong believes that these big-ticket industrial deals are likely a one-off occurrence. He expects that there may be one or two more large deals transacted in 2025, but that they would probably be significantly less than $1 billion each.In its 3Q2024 market report published in October, JTC estimated that about 0.2 million sqm of new industrial space is expected to be completed in 4Q2024. Of this supply, around 33% will consist of business park space, followed by single-use factory space (31%), warehouse space (30%), and multi-user factory space (6%). An additional 1.6 million sqm of space is targeted for completion in 2025, almost double the average annual new supply of 0.9 million sqm over the past three years. The new supply in 2025 will mainly consist of single-user factory space (0.74 million sqm) and warehouse space (0.65 million sqm).The influx of new supply, coupled with weaker demand, is expected to result in a supply-demand imbalance in the industrial property market in the short term. In light of this, Colliers is projecting that overall industrial rental growth will likely come in at between 2.5% and 3.5% this year, stabilizing from the 8.9% growth recorded last year. In a similar fashion, price growth is expected to ease from 5.1% in 2023 to between 1% and 2% this year, before dropping further to between 0% and 2% in 2025.Despite the more muted outlook, demand remains healthy for multiple-user factory space, centrally located food factories, and favored locations for logistics space, notes Savills’ Cheong. Savills forecasts rental growth of up to 3% for multiple-use factories, warehouses, and logistics rents this year, before tapering down to between 0% and 2% in 2025. Additionally, the electronics and advanced manufacturing sectors are expected to continue performing well and attracting investments. According to CBRE’s Song, “should the US Federal Reserve continue to cut lending rates in 2025, this could encourage more companies to deploy capex to pursue growth and expansion.”Knight Frank’s Tay is similarly optimistic about the semiconductor industry, which he expects to continue driving demand for industrial real estate in Singapore, supported by the growing requirements for electric vehicle and artificial intelligence projects. The latter is also expected to support data center expansion in Singapore. “Data centers will be an important pillar for the industrial sector, as Singapore plans to increase capacity by at least 300 megawatts as part of the Green Data Center Roadmap that was launched in May 2024,” says Tay.On the other hand, Colliers’ He believes that business park rents will likely continue facing pressure as companies downsize their footprint to cut costs or optimize workspace in response to flexible working arrangements. Savills also anticipates that rents could soften by 3% to 5% in the coming year. However, demand for newer facilities in central locations is expected to remain resilient, providing some support to the segment.