Domestic demand resilient; cross-border demand falls slightly

• Retailers, e-commerce and 3PLs drove demand in 2H22, mainly in the domestic market with increased shopping activity during the year-end holiday. Meanwhile, a potential recession in the US, rising inflation and interest rate hikes have dampened consumer spending and reduced export volumes. The logistics space occupied by manufacturers has decreased slightly due to a production slowdown.
• The logistics market remained buoyant in the final six months of 2022, thanks to leasing teams’ efforts to fill vacant spaces. Demand for built-to-suit (BTS) ready-built warehouses (RBW) boosted market net absorption and helped to balance supply and demand. Total net absorption in 4Q22 rose significantly, by nearly 400,000 sqm, and the vacancy rate stood at 30.6%, down 1.9% h-o-h.

New supply record across the Southern region

• In 2H22, the Southern RBW market welcomed a large amount of new supply across the region, accounting for 32% of total stock. All of this was developed by institutional players, such as SLP, Emergent Capital Partners, BWID, Frasers Property, Daiwa House and LOGOS. In total, the proportion of modern RBW stock has increased significantly, from 14% in 2018 to 43% by the end of 2022.
• Continuous supply in the last 12-18 months has put increasing pressure on current leasing activity in the market. Total supply reached 1.67 million sqm in 4Q22, with BWID and Mapletree dominating the market with 40% and 24%, respectively.

Average rent inches up modestly

• Rents increased modestly, up 4.5% h-o-h and 1.2% y-o-y to USD 4.6 per sqm per month, thanks to high rents in new, high-quality supply in prime locations. Most buildings have tried to keep rents stable in the face of the significant supply that constantly entered the market. Significant incentives have emerged, most notably longer rent-free periods, indicating increased competition in the field.
• There were no investment transactions announced in 2H22. Information on Mapletree Investment’s divestment of Mapletree Logistics Trust in Binh Duong Logistics Park and Boustead Singapore’s acquisition of new development land in Dong Nai, which took place in 1H22, was officially published in 2H22.

Outlook: Divergence in property performance is expected

• In 2023, a remarkable amount of supply will continue to enter the market, escalating the leasing market’s competitive situation. The Southern RBW market is expected to welcome a relatively large number of new projects totaling approximately 650,000 sqm. This will enlarge the market size with a total supply of 2.3 million sqm by the end of 2023, an increase of nearly 1.5 times compared to 2022.
• An abundance of supply is expected, putting pressure on the leasing market. Although headline rent rates are unlikely to change notably, significant incentives will be provided to attract tenants. Furthermore, landlords may consider short-term contracts to improve the performance of recently completed projects.