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On December 4th, VisionPower Semiconductor Manufacturing Company (VSMC) made an important step towards their future by starting the construction of a new wafer manufacturing facility in Tampines. The groundbreaking ceremony marked the beginning of a US$7.8 billion ($10.5 billion) project, with the plant set to begin production in 2027 and reach a capacity of 55,000 wafers per month by 2029. This development is estimated to create 1,500 job opportunities. VSMC is a joint venture between Taiwan’s Vanguard International Semiconductor Corporation and the Netherlands’ NXP Semiconductors, with a shareholding ratio of 60:40 respectively.
However, VSMC is not alone in their expansion efforts. In March, Japan’s Toppan Holdings began construction on a new factory in the Jurong Lake District that will specialize in producing semiconductor packaging materials. The company has invested around $450 million in this project.
According to Leonard Tay, head of research at Knight Frank Singapore, VSMC and Toppan are just a few examples of chipmakers and related businesses that are setting up production facilities and research centers in Singapore. This move is aimed at increasing their supply chain resilience, especially in light of ongoing geopolitical tensions in other parts of the world. Tay notes that Singapore remains a global production hub for semiconductors and chips due to its stability and attractiveness to businesses.
Location is a key consideration when it comes to real estate investments, and this is particularly relevant in Singapore. Condominiums that are strategically positioned in central areas or in close proximity to important amenities, such as schools, shopping centers, and public transportation hubs, often experience a higher appreciation in value. Prime locations like Orchard Road, Marina Bay, and the Central Business District (CBD) are prime examples, with properties in these areas consistently showing growth in value. The presence of reputable schools and educational institutions nearby also adds to the appeal of these condos, making them highly sought-after by families and further enhancing their investment potential. In light of this, it is no surprise that New Condo Launches in these areas are highly anticipated and in high demand by investors and homebuyers alike.
This trend in Singapore is occurring as the global semiconductor industry recovers from a slump in 2023 brought on by reduced demand and increased supply. According to research by London-based consultancy Omdia, the industry recorded a 26% year-on-year increase in revenue for the first three quarters of 2024. This is a significant turnaround from the previous year, during which revenue dropped by 9% to US$544.8 billion for the entire year.
The recovery in the semiconductor industry has also given a boost to Singapore’s manufacturing sector. After a slow start to the year, with two consecutive quarters of decline, the manufacturing output rose by 11% year-on-year in the third quarter of 2024. This was driven by strong demand for smartphone and PC semiconductor chips, according to data from the Ministry of Trade and Industry.
Despite this positive growth, Singapore industrial property rentals have shown signs of slowing down. The JTC All Industrial Rental Index has been on an upward trend since the third quarter of 2020, but its growth has progressively slowed down. In the first three quarters of 2024, the index grew by 1.7%, 1%, and 0.3% respectively. This is a significant drop from the 8.9% rental increase recorded in 2023. This trend reflects a more cautious sentiment among occupiers, who are wary of an uncertain macroeconomic environment. Catherine He, Colliers’ head of research for Singapore, notes that occupiers have become more prudent, and value flexibility in order to adapt to the ever-changing market dynamics.
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 contributed to slower growth in the industrial property market this year.
However, this impact has not been felt across all segments of the industrial property market. Multiple-user factories and warehouses have remained relatively resilient, with rental growth across the first three quarters of the year. On the other hand, single-user factories and business park rents have dipped, falling by 0.3% and 0.2% respectively in the third quarter of 2024.
The industrial sales market, however, has been more active. After a slow start to the year, sales activity picked up in the second quarter, with several significant transactions taking place. This includes the sale of BHL Factories at 2C Mandai Estate for $74 million in May, Kian Ann Building at 7 Changi South Lane for $63 million in June, and a single-user factory at 47 Pandan Road for $36 million in April.
The market experienced further growth in the third quarter, with a spike in big-ticket industrial deals. For example, Warburg Pincus and Lendlease Group jointly acquired a $1.6 billion portfolio of seven industrial properties from Soilbuild Business Space REIT. This boosted industrial property sales to $2.45 billion in the third quarter of 2024, a sevenfold increase from the previous quarter, according to Alan Cheong, executive director of research and consultancy at Savills Singapore. Savills attributes this boost in transactions to an improved sentiment due to the US Federal Reserve’s interest rate cut in September and the manufacturing sector’s improved performance.
However, Cheong believes that these big-ticket deals may be a one-off occurrence. Although there may still be a few significant transactions in 2025, they are likely to be below $1 billion each, in contrast to the third quarter of 2024.
The incoming supply of industrial space and weaker demand are expected to lead to a supply-demand imbalance in the near term. This will likely result in slower pre-commitment and occupancy rates at upcoming and existing developments. Collier’s He forecasts that rental growth in the industrial property market will range between 2.5% and 3.5%, a stabilizing trend from the 8.9% growth recorded in 2023. Similarly, price growth is expected to reduce from 5.1% in 2023 to a range of 1% to 2% in 2024. “For 2025, both rental and price growth may slow down further to between 0% to 2%,” adds He.
However, despite the more muted outlook, demand remains strong for multiple-user factory space, centrally located food factories, and favored locations for logistics space, notes Savills’ Cheong. On the other hand, business park rents are facing pressure as companies downsize their footprint to cut costs or optimize workspace in response to flexible working arrangements. This trend is expected to continue, although demand for newer facilities in central locations may provide some support to the segment.