Industry Outlook

Industrial Real Estate (Singapore)

Refer to important disclaimers at the end of this report

DBS Group Research . Asian Insights Office 17 September

22 2015
August 2017

Overall Outlook
We believe the outlook for Singapore’s industrial sector will remain soft in the immediate term and will only start to
bottom out from end-2017 on the back of abating supply risk. Rental rates are expected to edge down by 5% in 2017
and bottom out in 2017. Demand for space has lagged supply growth over the past few years as firms consolidate or
downsize their space requirements to save costs. Vacancy rates are expected to remain on an uptrend, reaching 11%
and bottoming out only from 2019.

Industrial market summary

% Change % Change
Key Indicators 4Q16 1Q17 2Q17
(q-o-q) (q-o-q)
Price Index
Industrial Property 95.4 93.3 -2.2% 91.8 -1.6%
Multi-User 98.7 96.9 -1.8% 95.4 -1.5%
Rental Index
Industrial Property 93.8 93 -0.9% 92.3 -0.8%
Multi-User Factory 91.7 90.7 -1.1% 89.9 -0.9%
Single-User Factory 100.9 99.9 -1.0% 100.1 0.2%
Warehouse 91 90.5 -0.5% 88.5 -2.2%
Business Park 105.4 104.3 -1.0% 106.5 2.1%
Vacancy rate
Industrial Property 10.5% 10.6% 1.0% 11.3% 6.6%
Single-User Factory 9.1% 9.4% 3.3% 9.6% 2.1%
Multi-User Factory 12.7% 13.0% 2.4% 13.6% 4.6%
Warehouse 10.3% 10.1% -1.9% 11.9% 17.5%
Business Park 17.0% 16.0% -5.9% 14.3% -10.6%
Pipeline under construction
Industrial Property 47.3 52.5 11.0% 42.3 -19.4%
Single-User Factory 18.6 18.5 -0.5% 17.5 -5.4%
Multi-User Factory 16.1 14.8 -8.1% 14.4 -2.7%
Warehouse 12.3 18.5 50.4% 9.0 -51.4%
Business Park 0.3 0.8 nm 1.4 nm
Source: Jurong Town Corporation

Manufacturing sector expanded in 2017. Singapore’s manufacturing sector has been showing signs of a rebound in
activity, with the purchasing managers’ index recording an expansion in June 2017. The electronics, precision
engineering, chemicals and biomedical, and manufacturing clusters registered an increase in output while the transport
engineering and general manufacturing clusters contracted. In addition, latest posturing from the government implies
that 2017 growth could come in at the higher end of GDP estimate of 2-3% – another positive sign.

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Industry Outlook
Industrial Real Estate (Singapore)

Demand

Net surplus of space. As of 2Q17, take-up for industrial space still lagged the increase in supply, with a net increase in
unoccupied space of close to 3.0 million square feet (sqft). The majority of this space is expected to be taken up
progressively by end-user occupiers in the coming quarters.

We believe that demand for space comes on the back of consolidation of operations to achieve operational efficiency,
which is one of the key drivers for space in the industrial sector. Hence, we expect the increased take-up in the single-
user factory space to be at the expense of higher vacancy rates emerging from existing multi-user factory space, which
some of the end-users are expected to vacate.

Supply

2017 – a year of consolidation. The industrial market is at the tail-end of a period of a spike in supply completions
starting from 2014 and peaking in 2017. As such, landlords are facing an increasingly competitive operating
environment and with the weak demand outlook on the back of a slowing economy, we expect downside risks to
occupancy rates and market rents.

Based on the latest statistics from the Urban Redevelopment Authority (URA), a total of 4.3 million square metres (sqm)
– equivalent to 42.3 million sqft – of new industrial space is either under construction or in planning and is projected to
complete over the next four years, from 2017 to 2020. Of this, more than 75% of the space will be completed and
operational by the end of 2018.

Among industrial types, the single-user factory space will see close to 1.6 million sqm in new supply (representing a
6.6% increase), the multi-user factory space will see about 1.3 million sqm of new supply (12.3% rise), and the
warehouse space will add around 0.8 million sqm (up 8.3%). The business park space will add another 123,000 sqm.
However, most of the space is pre-committed and thus, not an issue for existing landlords.

Forecasts

Industrial sector’s overall vacancy rates to increase to 10-11% by 2017; bottoming out from 2018 onwards. Taking
into account assumed pre-commitment rates and projected new demand, and faced with an increasing supply outlook,
the average vacancy rate is now 11.3% (as of 2Q17) and we expect further weakness until the end of 2017, before it
bottoms out from 2018 onwards.

As the influx and pace of completions are skewed over 2016-2017, we believe that, on average, spot rentals are likely
to see downside to the tune of 5% in 2017, with the exception of business park space which we believe will be
resilient with around 0-3% growth.

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Industry Outlook
Industrial Real Estate (Singapore)

Key Charts – Industrial Sector

Business expectations improving Remarks
20%
16% 1. A net weighted balance
15% of 7% of manufacturers
anticipate a favourable
10%
7% 7% business situation for
5% 3%
4% the period of Apr-
2%
1% Sep’17, compared to
0% 1Q17
Apr-Sep'16 Jul-Dec'16 Oct'16-Mar'17 Jan-Jun'17 Apr-Sep'17
-5%
-1% -4% 2. A net weighted balance
-10% of 16% of
-9%
manufacturers expect to
-15%
see a 16% rise in
General Business outlook Output forecast output from Apr-
Sep’17.
Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

Supply tapering down from 2018F onwards Remarks

m sqft
25.00 1. A drop-off in supply in
2018 will ease
20.00 pressures on industrial
REITs.
15.00

10.00 2. Downward pressures

on rentals and
5.00 occupancy rates are
-
expected to taper off in
2013 2014 2015 2016 2017F 2018F 2019F the medium term.
Supply Demand

Source: JTC Corporation, DBS Bank

Net absorption remains negative but significant improvement expected from 2018F Remarks
m' sqft
10.7%
8.0 10.6%
10.3%
11.0% 1. Net absorption is
6.0 9.1% 9.4% 9.7% projected to turn
10.0%
4.0 positive in 2019F.
9.0%
2.0 8.1%
- 8.0%
2013 2014 2015 2016 2017F 2018F 2019F
(2.0)
7.0%
(4.0)
6.0%
(6.0)

(8.0) 5.0%

Net Absorption Rate Market Vacancy Rate (%)

Source: JTC, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Rental reversion trend to remain negative over 2016-2018 Remarks

50%
1. Rental reversion trends
40%
are expected to turn
from flattish to
30% negative from 2016
onwards.
20%
2. The factory and
10%
warehouse space is
expected to see a larger
0%
drop in rental
2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F reversions.
-10%
3. Business park space is
Business Park Warehouse Factory
-20%
expected to buck the
trend.
Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

Rental trends (forecast) Remarks

Industrial Segments 2015 2016 2017F 2018F 1. Rentals for the factory
S$ psf/mth S$ psf/mth S$ psf/mth S$ psf/mth and warehouse
Factory 2.09 1.95 1.85 1.80
segments are forecast
to decline by 5% over
Warehouse 1.98 1.83 1.74 1.69
the next two years. We
Business Park 4.15 4.17 4.26 4.34
believe the warehouse
space will see the
largest declines given
% Change % Change % Change % Change supply competition.
y-o-y y-o-y y-o-y y-o-y
Factory -2% -7% -5% -3% 2. The business park
segment is expected to
Warehouse -3% -8% -5% -3% increase by 2% in 2017
to 2018, supported by a
Business Park -1% 0% 2% 2%
lack of supply
completions.
Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Industrial Sub-sector – Multi-User Factory

Multi-user factory supply: Supply spike in 2016 to be an overhang Remarks

1. Supply completions to
spike in 2017-2018;
resulting in vacancy rates
increasing to more than
14%.

2. However, we see risk

emerging from the
“shadow space” arising
from the single-user factory
segment if end-users
decide to sub-lease part of
their space (bottom chart).
Potential “shadow space” from single-user factory space might result in increased
competition for tenants 3. Rentals are expected to
remain under pressure as
12.0
Million Sqft competition heats up. We
10.0 project a 5% drop over
2017 followed by a more
8.0
modest 3% fall in 2018.
6.0

4.0

2.0

-
2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
Multi-User Space Potential Shadow space from Singer-User Factory segment

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

Multi-user factory: Occupancy and rental rates to dip Remarks

S$ psf pm Multi-User Factory

2.50 92% 1. Multi-user factory rents
expected to decline 5% in
91%
2.00 2017-2018.
90%

1.50 89% 2. Occupancy rates projected

88% to dip to 85% going
1.00 87% forward.
86%
0.50
85%
- 84%
2017F
2018F
2010
2011
2012
2013
2014
2015
2016

1Q14

4Q14
1Q15
2Q15
3Q15

2Q16
3Q16
4Q16
1Q17
2Q14
3Q14

4Q15
1Q16

Rental (LHS) Occupancy (%) (RHS)

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Industrial Sub-sector – Warehouse

Warehouse: Oversupply situation to persist until 2018 Remarks
m Sqft
9.0 12% 1. Supply under
8.0 construction remains
10%
7.0 one of the highest
6.0 8% among industrial sub-
sectors.
5.0
6%
4.0
2. While new supply
3.0 4%
appears to be pre-
2.0
2% committed, we believe
1.0 the emergence of
- 0% shadow space will
2013 2014 2015 2016 2017F 2018F 2019F
create an overhang on
Supply Demand Vacancy Rates landlords’ ability to raise
rents.
Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

Warehouse: Occupancy to dip below 90% Remarks

2.50 Warehouse 95% 1. Warehouse rents

S$ psf pm
expected to decline 3-
94%
2.00 5% in 2017.
93%
2. Occupancy rates
1.50 92% projected to dip below
91% 90% going forward.
1.00
90%
0.50
89%

- 88%
2017F
2018F
2011
2012
2013
2014

2016
2010

2015

2Q14
3Q14
4Q14
1Q15

3Q15
4Q15

2Q16

4Q16
1Q17
1Q14

2Q15

1Q16

3Q16

Rental (LHS) Occupancy (%) (RHS)

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Industrial Sub-sector – Business Parks

Majority of business park space has been pre-committed Remarks

'000 sqft 1. The sector is expected to

Gl o bal Financial Crisis (2008-2009)
0.03 100% see minimal increase in
supply, which will be
0.03 Eu rozone Crisis (2012) 95% supportive of rental rates
0.02 going forward. We
90%
believe the high vacancy
0.02
in the market can be
85%
0.01
absorbed slowly over
80%
time.
0.01

75%
-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
(0.01) 70%

Demand for Private Business Park Supply for Private Business Park Occupancy Rate (%)

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

Business parks: Rental differential currently above historical averages Remarks

20 Business Park vs. Grade A Office rents

(S$ psf/mth)
1. Rents of business park
18 spaces located in off-
central and rest of island
16
areas tend to be at 50%
14 and 60% discounts,
12 respectively, to Grade-A
offices.
10

8 2. Current differential is
6
above the historical
average, but the
4
softening outlook for the
2 Central Business District
0
office rents caps further
4Q04 4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 upside.

Grade A Office Business Park - Rest of Island Series3

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Appendix
Rental Indices of Industrial Space

Rental indices (by region) – Multi-user factory

All Multi-User Single-User Business Warehouse

Period
Industrial Factory Factory Park

1Q 2010 70.5 70.8 76.6 92.9 70.4

2Q 2010 71.4 72.1 79.7 92.9 70.5
3Q 2010 74.9 75.9 78.7 93.7 73.5
4Q 2010 78.6 78.5 83.8 92.3 80.0
1Q 2011 83.6 85.0 82.4 94.7 81.5
2Q 2011 88.3 88.8 87.5 93.7 88.3
3Q 2011 90.4 90.7 87.9 97.3 90.6
4Q 2011 90.8 91.2 88.6 99.5 90.7
1Q 2012 92.5 92.4 92.8 98.9 92.4
2Q 2012 95.1 96.1 96.3 100.9 90.5
3Q 2012 96.2 96.2 97.3 101.1 93.6
4Q 2012 100.0 100.0 100.0 100.0 100.0
1Q 2013 100.4 100.4 102.8 102.1 99.8
2Q 2013 100.3 100.6 103.1 101.6 97.5
3Q 2013 104.7 105.0 102.3 103.7 101.9
4Q 2013 105.0 103.5 103.8 105.8 105.4
1Q 2014 105.3 104.9 107.4 105.8 100.6
2Q 2014 105.3 104.9 107.4 106.9 100.6
3Q 2014 103.4 102.6 109.5 105.9 100.6
4Q 2014 102.8 102.8 108.9 106.2 98.8
1Q 2015 103.2 102.9 109.2 106.6 99.4
2Q 2015 102.5 101.7 108.7 106.3 99.3
3Q 2015 101.7 100.6 109.3 104.9 98.7
4Q 2015 100.6 99.4 108.0 104.9 97.2
1Q 2016 97.9 95.7 105.9 103.9 96.4
2Q 2016 96.2 93.4 104.0 104.4 95.4
3Q 2016 94.3 92.2 101.8 104.2 91.2
4Q 2016 93.8 91.7 100.9 105.4 91.0
1Q 2017 93.0 90.7 99.9 104.3 90.5
2Q 2017 92.3 89.9 100.1 106.5 88.5

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Rental indices (by region) – Multi-user factory

Rental Index of Multiple-User Factory
Multi-User Planning Region Land-Use Zoning
Period
Factory Central North West East Northeast
Business 1 Business 2
Region Region Region Region Region
1Q 2010 70.8 76.7 76.2 79.0 83.5 82.2 76.9 82.2
2Q 2010 72.1 79.8 80.0 82.9 86.5 84.9 80.4 84.8
3Q 2010 75.9 83.5 81.9 84.5 88.6 82.8 82.9 87.6
4Q 2010 78.5 85.6 85.4 84.1 84.7 86.3 85.3 85.1
1Q 2011 85.0 86.8 86.1 88.1 87.6 88.6 87.2 87.4
2Q 2011 88.8 88.3 89.8 89.8 90.3 92.1 89.5 88.2
3Q 2011 90.7 92.5 93.9 94.0 90.5 92.5 93.1 91.5
4Q 2011 91.2 94.5 94.2 95.6 92.5 92.4 94.5 93.8
1Q 2012 92.4 93.2 97.7 94.4 96.6 96.9 94.1 95.0
2Q 2012 96.1 93.6 99.7 99.0 99.6 98.0 95.2 98.0
3Q 2012 96.2 95.5 100.3 101.9 101.1 99.3 96.9 101.0
4Q 2012 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1Q 2013 100.4 99.2 104.8 102.5 101.3 101.8 100.3 101.6
2Q 2013 100.6 101.3 100.3 103.0 103.0 98.4 101.0 102.8
3Q 2013 105.0 103.1 97.1 103.7 98.2 99.7 102.0 102.4
4Q 2013 103.5 100.5 98.0 103.6 100.2 100.0 100.6 101.6
1Q 2014 104.9 100.8 96.4 103.0 103.6 100.5 101.1 101.3
2Q 2014 104.9 100.8 98.7 100.0 102.1 103.6 101.0 100.5
3Q 2014 102.6 99.7 102.3 103.3 105.4 103.4 101.1 102.5
4Q 2014 102.8 101.1 98.7 99.5 107.6 104.9 101.8 100.8
1Q 2015 102.9 102.4 98.0 98.3 101.7 106.0 102.6 98.8
2Q 2015 101.7 101.5 98.4 96.9 101.2 102.3 101.4 97.2
3Q 2015 100.6 101.9 96.9 95.0 99.3 95.8 100.6 95.4
4Q 2015 99.4 100.8 96.5 93.8 99.0 93.0 99.3 94.7
1Q 2016 95.7 97.2 95.7 88.8 95.6 87.7 95.8 90.5
2Q 2016 93.4 94.0 94.9 86.2 94.1 87.3 93.1 89.3
3Q 2016 92.2 9.1 94.8 85.9 94.3 85.0 91.7 88.8
4Q 2016 91.7 92.0 94.3 84.2 92.8 85.0 91.4 87.6
1Q 2017 90.7 91.6 92.6 82.7 92.5 83.8 90.8 86.0
2Q 2017 89.9 90.9 92.2 82.0 90.6 83.1 90.2 84.6

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

Price Index of Industrial Space

Price indices of industrial space

Period Price Index of Multiple-User Factory
Multi- Remaining Tenure Land-Use Zoning Region
User
≤ 30 31 – 60 > 60 Business Business Central North West Other
Factory
Years Years Years 1 2 Region Region Region Regions

1Q 2010 51.9 59.9 60.9 57.3 63.4 55.5 64.9 54.5 56.4 61.9
2Q 2010 54.7 62.6 63.3 60.9 67.2 56.5 69.0 57.3 60.1 59.8
3Q 2010 59.5 67.0 64.9 65.7 68.5 60.9 69.6 60.3 64.6 63.2
4Q 2010 63.2 70.2 67.7 69.9 72.0 63.5 74.6 63.9 64.6 66.8
1Q 2011 68.7 74.4 73.0 74.6 77.5 67.7 78.6 69.5 69.8 72.9
2Q 2011 72.6 88.3 83.1 74.8 86.6 76.5 90.1 78.9 79.5 75.3
3Q 2011 77.4 91.2 85.4 79.8 87.5 82.2 89.1 81.0 86.4 80.4
4Q 2011 80.3 94.8 90.8 82.7 92.7 86.2 94.6 86.2 90.5 84.0
1Q 2012 86.1 93.1 95.4 85.5 96.3 89.2 99.3 88.1 91.0 90.2
2Q 2012 93.3 98.1 95.3 89.1 95.1 94.0 96.7 90.3 94.9 94.7
3Q 2012 102.7 102.5 97.3 94.8 97.4 97.9 98.6 94.8 99.0 96.5
4Q 2012 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1Q 2013 102.9 103.0 100.3 103.5 102.5 100.0 103.7 100.3 102.9 98.6
2Q 2013 103.5 100.3 104.5 102.7 105.5 98.5 106.3 98.7 105.4 101.2
3Q 2013 104.4 102.4 104.1 103.6 106.7 96.7 108.1 99.2 102.9 100.1
4Q 2013 103.2 105.5 104.5 101.8 105.3 99.7 105.9 97.5 107.8 102.8
1Q 2014 107.2 103.7 104.3 104.1 107.1 97.3 108.8 100.1 103.0 99.9
2Q 2014 109.9 100.6 105.3 105.6 107.8 98.3 110.8 101.0 100.5 100.0
3Q 2014 107.9 105.5 102.9 101.6 105.0 97.4 107.1 100.6 98.3 99.1
4Q 2014 107.7 108.0 103.4 99.2 105.5 95.3 106.6 100.5 98.1 99.2
1Q 2015 107.8 108.2 102.8 100.5 106.1 94.6 107.7 98.8 96.5 100.7
2Q 2015 107.4 105.6 102.0 101.3 105.2 95.0 107.2 98.5 96.1 100.0
3Q 2015 107.0 101.7 101.5 102.3 104.4 95.8 106.3 99.0 95.9 99.9
4Q 2015 105.9 97.8 101.1 101.2 104.2 92.8 106.5 97.7 92.9 97.7
1Q 2016 103.5 95.8 98.9 98.5 101..9 90.7 103.0 95.0 91.8 96.7
2Q2016 101.8 95.2 96.0 96.9 99.0 90.7 102.6 92.4 91.0 92.8
3Q 2016 100.8 93.1 96.0 96.7 97.3 90.2 102.0 91.7 89.8 92.0
4Q 2016 98.7 91.6 93.2 95.2 95.7 87.8 98.5 90.3 88.7 89.7
1Q 2017 96.9 90.6 90.6 94.0 95.2 85.1 97.2 88.2 87.4 88.0
2Q 2017 95.4 88.9 89.2 92.9 93.7 83.7 95.8 86.2 86.5 86.5

Source: JTC Corporation, Urban Redevelopment Authority, DBS Bank

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Industry Outlook
Industrial Real Estate (Singapore)

We Cover
AIMSAMP Industrial Real Estate Investment Trust
Ascendas Real Estate Investment Trust
Cache Logistics Trust
Cambridge Real Estate Investment Trust
Mapletree Industrial Trust
Mapletree Logistics Trust
Sabana Real Estate Investment Trust
Soilbuild Real Estate Investment Trust
Viva Industrial Trust

Our In-House Expert

Derek Tan
derektan@dbs.com
+65 6682 3716

Please note that DBS Bank Ltd may have research coverage in the companies mentioned in this industry report, that
have been produced prior to or subsequent to its publication. Please refer to the links below for the latest specific
equity research reports published on below-mentioned companies and the accompanying disclaimer/disclosure of
DBS’s interest in the companies mentioned in the respective reports.

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Industry Outlook
Industrial Real Estate (Singapore)

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only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising
from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only
intended for institutional clients only and no other person may act upon it.

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Industry Outlook
Industrial Real Estate (Singapore)

United Kingdom This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of
the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK
is intended only for institutional clients.

Dubai This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC
Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial
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Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other
person may act upon it.

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on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research
analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject
company, public appearances and trading securities held by a research analyst. This report is being distributed in the United
States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S.
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to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd

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Tel. 65-6878 8888
Company Regn. No. 196800306E

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