It’s not all gloom and doom for struggling office REITs

Don’t be too worried about the space glut.

Jittery investors have been particularly unkind to office REITs on back of mounting fears of a looming office space glut, but analysts at UOB Kay Hian believe that fundamentals remain sound despite near-term headwinds.

“We note that the lease expiry profiles of commercial REITs are well spread out, which should avert the bulk of the impact on rental reversions,” said UOB Kay Hian.

Investors are particularly concerned about the upcoming completion of Marina One in 2016, which will 1.88m sf of CBD space. Other major CBD completions include Guoco Tower (0.85m sf), Duo (0.57m sf) and 5 Shenton Way (0.28m sf) will boost the office supply.

“However, supply remains meagre beyond 2017, which should be a catalyst for growth in rentals beyond 2017. We forecast CBD Core Grade A rentals to correct 10-15% in 2016, before picking up 5-10% p.a. in the following years. Demolitions could remove close to 1m sf of upcoming supply over the next two years, alleviating the near-term oversupply concerns,” said the report.

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