Are office rents poised to bottom out this year?

Check out how office REITs performed in the past year.

Singapore's office rents are expected to bottom out this year, according to a report from OCBC Investment Research.

To recall, core Grade A CBD office rents decreased by 2.2% QoQ to $9.10 psf/month in 4Q16. OCBC noted that although this signified the seventh straight quarter of decline from the peak of $11.40 psf/month achieved in 1Q15, the magnitude of fall was almost similar to 3Q16 (-2.1%).

"We believe the office market may be stabilising, and forecast a smaller pace of rental dip of 5%-10% in 2017, as compared to the 13.1% fall in 2016. The soft spot rent market translated into more negative reversions for office REITs," OCBC said.

The report cited Keppel REIT, which saw a rental reversion of -9% in FY16, with an average signing rent of $9.60 psf/month for its Singapore office leases.

"The average rents for its Singapore office leases due for renewal and review this year and in 2018 are at the low $9 level, and hence we foresee further negative rental reversions for the year ahead," it stated.

Meanwhile, CapitaLand Commercial Trust’s average gross office rent per month was up 3.4% YoY but down 0.2% QoQ to $9.20 psf/month. According to OCBC, CCT highlighted that it has become more challenging to achieve positive rental reversion, with downward pressure on rents given competition amongst landlords.

As for OUE Commercial REIT, negative rental reversions for its Singapore portfolio were seen: OUE Bayfront -10.1%; One Raffles Place -3.0%. However, Lippo Plaza, which is located in Shanghai, registered positive rental reversion of 9.3%.

For Starhill Global REIT, its office portfolio located in Orchard Road, experienced a 4.1 ppt YoY dip in occupancy to 95.9%, while rental reversions came in at -1.6%, partly due to oil and gas related tenants downsizing or leaving its premises.

Suntec REIT also recorded a dip in average rents from $8.86 psf/month to $8.65 psf/month.

"However, not all is doom and gloom, as the Singapore office market registered a second consecutive quarter of positive net absorption islandwide in 4Q16. With supply pressures easing by end-2017, we expect office rents to bottom out correspondingly, barring any
unforeseen circumstances," OCBC said

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