On December 4, Singapore’s VisionPower Semiconductor Manufacturing Company (VSMC) made headlines when they officially broke ground on a new manufacturing facility in Tampines worth an estimated US$7.8 billion ($10.5 billion). The project, which is expected to start initial production in 2027, aims to produce 55,000 wafers per month by 2029 and create approximately 1,500 jobs. VSMC is a 60:40 joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors.
Other players in the semiconductor industry are also making moves to expand their operations in Singapore. In March, Japan’s Toppan Holdings broke ground on a new factory in Jurong Lake District that will produce semiconductor packaging materials. The project, which is estimated to cost $450 million, will boost Toppan’s presence in the country.
According to Leonard Tay, head of research at Knight Frank Singapore, the growing trend of companies setting up new production plants and R&D campuses in Singapore is driven by the need to bolster their supply chain resilience. “Singapore’s stability amid ongoing geopolitical tensions in other parts of the world makes it an ideal global production hub for semiconductors and chips,” he remarks.
The global semiconductor industry is experiencing a rebound after a downturn in 2023 due to softer demand and higher supply. Data from London-based consultancy Omdia shows that the industry recorded a 26% year-on-year jump in revenue for the first three quarters of 2024. This is a significant recovery from a 9% decline in revenue in the previous year, which amounted to US$544.8 billion for the whole of 2023.
This rebound has also had a positive impact on Singapore’s manufacturing sector, which saw a rise in output of 11% year-on-year in the third quarter of 2024. The electronics cluster, in particular, drove this growth with strong demand for smartphone and PC semiconductor chips.
While industrial property rents in Singapore have been on an upward trajectory since 3Q2020, they have shown signs of slowing down in the past year. The JTC All Industrial Rental Index has risen for 16 consecutive quarters as of 3Q2024, but the pace of growth has gradually decreased. Rental growth was 8.9% in 2023, but it has since stabilised, with quarterly growth of 1.7%, 1%, and 0.3% in 1Q2024, 2Q2024, and 3Q2024 respectively.
This slowdown can be attributed to a more cautious sentiment among tenants in light of the current uncertain macroeconomic climate. Catherine He, Colliers’ head of research for Singapore, notes that budget and capital expenditure constraints have made occupiers more prudent in their decision-making, leading them to value flexibility in adapting to market changes.
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 led to growing occupier resistance in the industrial property market.
However, different segments of the industrial property market have shown varying levels of resilience. For instance, multiple-user factories and warehouses have remained relatively robust, with rental growth in the first three quarters supported by stable occupancy rates.
On the other hand, the single-user factory segment has seen softer demand, resulting in a 0.3% decline in both rents and occupancy in 3Q2024, the first rental decline since 3Q2020. Business park rents have also dipped, falling 0.2% in the same quarter despite a marginal uptick in occupancy. This decrease in rents extended a 0.1% decline recorded in 2Q2024.
The industrial sales market has seen more activity as compared to the leasing market. After a slow start to the year, a flurry of sizeable transactions were made in 2Q2024, including 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 third quarter saw an even more significant boost, with a sevenfold increase in industrial property sales to $2.45 billion. This rise was driven mainly by improved sentiment after the US Federal Reserve’s interest rate cut in September, coupled with a stronger manufacturing sector performance.
Alan Cheong, executive director of research and consultancy at Savills Singapore, believes that these big-ticket deals were a one-off occurrence. “We may still see one or two large deals in 2025, but they will likely be significantly below $1 billion each,” he notes.
JTC has forecasted that approximately 0.2 million sqm of new industrial space will be completed in 4Q2024. This comprises 33% business park space, followed by 31% single-user factory space, 30% warehouse space, and 6% multi-user factory space. A further 1.6 million sqm of space is targeted for completion in 2025, almost double the average annual new supply of 0.9 million sqm in the past three years. This new supply will predominantly consist of 0.74 million sqm of single-user factory space and 0.65 million sqm of warehouse space.
This influx of new supply, coupled with softer demand, is expected to lead to a supply-demand imbalance in the industrial property market. This will likely result in slower pre-commitment and occupancy rates in upcoming and existing developments. Catherine He from Colliers forecasts overall rental growth of between 2.5% and 3.5% in 2024, stabilising from the 8.9% growth recorded in 2023. Similarly, price growth is expected to decrease from 5.1% in 2023 to between 1% and 2% in 2024. These figures are expected to further slow down to between 0% and 2% in 2025.
The demand for multiple-user factory space, centrally located food factories, and desirable locations for logistics space remains strong. In addition, the electronics and advanced manufacturing sectors are expected to continue performing well and attracting investments. CBRE’s Tricia Song notes that if the US Federal Reserve continues to cut lending rates in 2025, this could encourage more companies to pursue growth and expansion by deploying capital expenditure.
Knight Frank’s Leonard Tay is optimistic about the semiconductor industry, which he expects to continue driving demand for industrial real estate in Singapore, backed by the growing requirements for electric vehicles and artificial intelligence. Data centres are also expected to support the industrial sector, as the country plans to increase capacity by at least 300 megawatts as part of the Green Data Centre Roadmap introduced in May 2024.
However, the demand for business park space is expected to remain soft as companies continue downsizing their footprint to cut costs or optimise their workspace in response to flexible working arrangements. Rentals for multiple-user factories, warehouses, and logistics space are expected to remain resilient, albeit with slower growth. Savills forecasts rental growth of up to 3% for these segments this year, before tapering down to between 0% and 2% in 2025. On the other hand, business park rents are expected to decrease by 3% to 5% in 2024. Despite this, the demand for newer facilities in central locations remains strong, providing some support to this segment.
Investing in a condominium in Singapore presents numerous advantages, one of which is the potential for capital appreciation. As a bustling global business hub with a robust economy, Singapore is constantly in demand for real estate. This has led to a consistent upward trend in property prices, especially in prime locations where condos have seen significant appreciation over the years. Savvy investors who capitalize on the market at the opportune moment and hold onto their properties for an extended period can reap substantial profits in terms of capital gains. Keeping an eye on Singapore Projects can provide valuable insights for potential investors.