Singapore's industrial property sector is facing a surge in supply just as manufacturing and trade are slumping.
Industrial property prices in the city-state fell at their steepest pace in over two years in the fourth quarter of 2015 and analysts are pointing to further weakness ahead.
"Supply is coming up very strongly," Toh Shaowei, director for research and strategy for global real estate at UBS Asset Management, said earlier this week.
That's partly a side-effect of the government stepping in over the past few years to cool the residential property sector, he said.
"When the residential segment was hit by cooling measures, I think a lot of investors moved in to the logistics sector. So there's some build up in terms of supply that has come on stream and will continue to come on stream," he said, estimating around 17 million square feet of supply will hit the market in the next four years.
That comes as Singapore's manufacturing purchasing managers' index (PMI) for March improved to 49.4 in March from February's 48.5, but still remained below 50 for the ninth straight month, signaling contraction.
The sector also isn't likely to see benefits from e-commerce, one of the drivers for industrial-space growth in other countries, he noted.
"[With] the size of Singapore's ecommerce market, there's only so much you can scale up," Toh said. Singapore has a relatively small population of only around 5.5 million and it has ample brick-and-mortar locations. "We think that supply is a natural limit now and it will continue to dampen the rental performance," Toh added.
In the fourth quarter of last year, the price index for industrial space fell 1.5 percent on-quarter and the rental index for the segment fell 1.1 percent in the period, according to JTC, which is Singapore's agency for planning industrial development.
Despite the recent decline, prices are still high for some. Philip Levinson, chief executive officer at Cambridge Industrial Trust, said last week that the Singapore-listed real-estate investment trust (S-REIT) is looking for acquisitions in its industrial segment overseas because he isn't able to find assets at "compelling" prices in the city-state.
That comes as a slowdown in global trade and an oil and gas industry hard-hit by falling energy prices are denting demand for logistics space in the city-state.
Occupancy of properties owned by Cambridge fell to 94.3 percent by the end of December, down from as high as 99.2 percent in March 2013, according to data from Deutsche Bank.
There's something else that may dampen interest in the sector: It's very utilitarian.
"It was never going to shoot the lights out on returns," noted Levinson.