Singapore’s Unique Position in the World of Trade Drives Demand
Singapore’s status as a premier global trading hub has led to its development of being one of the most advanced warehouse and logistics industries in the world. It’s the world’s busiest transhipment hub, seeing 1,350 times more cargo movement by sea rather than air .
The tiny island-nation has an extensive network of Free Trade Agreements with 27 trading partners, enhancing its access to the world’s biggest markets . These agreements effectively make Singapore the ultimate “middleman” in global trade, as it remains neutral in the global scene.
That middleman role is growing as a result of booming e-commerce in Singapore and the rest of Southeast Asia, which is dominated by regional online platforms like Sea Limited’s Shopee and Alibaba’s Ali-Express services.
Singapore’s reputation for quality manufacturing, especially in the field of electronics, makes it an ideal base for global businesses to export to Asia and the rest of the world. The country’s stable government, open financial system, reliable infrastructure, and large pool of diverse and talented workforce are competitive advantages that set it apart from its neighbours.
These competitive advantages are tempered by the limitations of Singapore’s relatively small land mass. As such, the supply of warehouses in Singapore has been constrained by geographical limitations.
Between 2022 and 2027, the new warehouse supply is expected to reach just 7.8 million sq ft – or an annual average of 1.56 million sq ft . That is well below the historical annual average of 4 million sq ft.
The addition would grow the country’s stockpile by 14.5%. That is a Compound Annual Growth Rate (CAGR) of only 2.7%, which will fall far short of the expected 4% increase in annual warehouse demand.
Can This Stronger Demand be Sustained?
Towards the end of 2023, persistently strong and resilient demand for warehouses and logistics properties resulted in rents rising 1.7% quarter-on-quarter (QoQ) and 7.4% year-on-year (YoY) in 4Q.
This was slower than the 4.5% QoQ growth in prime warehouse and logistics property rents witnessed in Q2 .
Warehouses will continue to see firm demand from companies needing to stockpile in view of a resurgence of risk such as geopolitical and environmental pressures. Leasing volume for warehouse grew 23.9% YoY in 4Q.
The bulk of the new supply of warehouse and logistics is expected to start hitting in 2024, which is almost 50% higher than average historical completion. That’s expected to pressure warehouse rental rates in the medium term.
Warehouse rents are now forecast to rise modestly between 0% and 3%, with e-commerce expected to continue being a major driving force in warehouse demand going forward. Online retail sales in Southeast Asia alone expected to nearly double from $131 billion to $211 billion between 2022 and 2025 .
Where To Position for Singapore’s Future Warehouse Industry
Investors in Singapore’s property market will do well to take a closer look at the growth areas driving the industry. These entail high-spec facilities that normally come equipped with automation systems and preferably carrying a Green Mark Certificate signifying their commitment to helping reach the country’s net-zero goals by 2050.
Businesses and retailers are simply also running out of space to put the increasing number of items that consumers buy online. These facilities also need to be able to get items out the door quickly to maximise the use of every single cubic centimetre of the warehouse.
Since the pandemic started, online shopping is estimated to have grown 43.5% to reach $2.87T globally, almost half of which came from Asia. The global supply chain crisis that pushed warehouse space around the world close to full capacity has eased, with vacancy rates rising modestly from historic lows .
Singapore’s warehouse and logistics industry is already well-developed. The country’s status as a major global trading hub for commodities, everyday manufactured goods, and even high-tech industrial equipment, will continue to feed into demand for warehousing that will serve a wealthy local market and a vast export market within Asia.
The supply of warehouses in Singapore is also not expected to grow meaningfully in the coming years. While it does not mean warehouse lease rates are going to rise unchecked, it will put more upward pressure on lease rates for facilities that cater to the higher growth industries of today.
1https://www.mordorintelligence.com/industry-reports/singapore-freight-and-logistics-market/market-size
2https://www.mindef.gov.sg/web/portal/mindef/news-and-events/latest-releases/article-detail/2018/april/19apr18_fs/#:~:text=Singapore is a Global Maritime Transshipment Hub&text=Up to 70%25 of the,by sea than air annually
3https://www.trade.gov/country-commercial-guides/singapore-trade-agreements#:~:text=Singapore has an extensive network,Union%2C United Kingdom and Turkiye
4https://www.mapletreelogisticstrust.com/services/view_file.aspx?f={2C83224F-E953-483F-8B73-C2FBFB076825}
5https://www.savills.com.sg/insight-and-opinion/savills-news/213186-0/industrial-leasing-volume-increased-6.1--in-q2-2023-to-3-298-tenancies
6https://www.statista.com/statistics/958414/southeast-asia-e-commerce-market-value/#:~:text=In 2022%2C the e%2Dcommerce,worth 211 billion U.S. dollars
7https://www.savills.com/impacts/market-trends/warehousing-costs-around-the-world.html
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