• Maintain Equal Weight view on Industrial REITs sector
• 9M 2018 sector occupancy has been stable and Rental Index trend lower in smaller increments
• Demand-side looks fragile, as manufacturing and export data are moderating
• Maintaining our view that rental bottom is likely to be delayed to 2019, and generally negative reversions to persist for at least 1H 2019

What is the news?

• JTC released its Quarterly Market Report of Industrial Properties for 3Q 2018.

How do we view this?

The Positives

• Sector occupancy has remained stable and is at its highest YTD

Leaders were the Business Park and Warehouse segments which made QoQ improvement in occupancy, but Multi-User Factory occupancy continues to make a new low.

• Tapering supply pipeline in 2019

JTC reports 1.8 million sqm of space expected to come on-stream in 4Q2018 and 2019, compared to the historical 3-year average annual supply and demand of 1.6 million sqm and 1.2 million sqm respectively. Examples of trade sectors with sustained demand during the quarter came from Precision Engineering and Transport and Storage (supply chain management, third-party logistics and freight forwarding).

The Negatives

• Rental Index remains weak

Sector Rental Index continue to trend lower and Business Park rent appears to have peaked. The silver lining is that Factory and Warehouse rents are bottoming.

• Lower Singapore occupancy for bellwethers A-REIT and MINT

Singapore occupancy at Ascendas REIT (A-REIT) was lower QoQ mainly due to non-renewals at logistics properties. However, total portfolio occupancy was stable QoQ, aided by the Australia portfolio and addition of the UK portfolio which is effectively fully occupied.

Singapore occupancy at Mapletree Industrial Trust (MINT) was lower QoQ mainly due to Flatted Factories (HGST departure in 1Q FY18/19 from Kaki Bukit Cluster, who was the ninth largest tenant in MINT’s portfolio) and Hi-Tech Buildings segments (effect of addition of Mapletree Sunview 1 (time lag between obtaining temporary occupancy permit and actual occupancy) and 7 Tai Seng Drive into the portfolio (completed speculative asset enhancement initiative and ramping up occupancy)).

• Mixed bag for rental reversions with negative bias

Rental reversions reported by the various industrial REITs ranged between ‑10% and +4%. However, this is only an indicative range, which does not take into account the floor area of space being renewed at these reversions.