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The Singapore real estate investment trust (S-REIT) is expected to remain stable over the next 12-18 months despite current market conditions of a softening demand and increase in supply, ratings agency Moody’s said in a report.
The stable outlook mirrors Moody’s expectations that the sector’s bigger asset base – fueled by the completion of asset enhancement initiatives and new acquisitions in 2014-2015 – will lead to a six to nine percent growth in aggregate annual EBITDA for the 19 S-REITs under its coverage.
“Over the next 12-18 months, we expect overall occupancy and rental rates for most property segments to be under pressure, because of ample supply and soft demand,” said Jacintha Poh, a Moody’s Assistant Vice President and Analyst.
“As for the 19 S-REITs that Moody’s rates, their well-staggered lease expiry profiles and proactive lease management approach in securing rentals in advance of tenancy expiry will limit the negative impact on EBITDA of lower occupancy and rental rates.”
The report noted that Keppel REIT, OUE Commercial Real Estate Investment Trust and CapitaLand Commercial Trust are the most exposed to the higher supply levels and lower demand for office space within the CBD since two-thirds of their portfolio are CBD office space.
Nonetheless, these S-REITS will benefit from their track record of active lease management as well as portfolio of quality assets as tenants tend to go for quality assets when rental rates fall.
On the retail front, Moody’s expects demand for such properties to remain weak next year, as retailers grapple with higher operating costs, soft consumer demand levels, increasing competition from online retailers and tight labour market.
Meanwhile, it expects hotel revenues to fall on the back of lower tourist arrivals and competition from new hotels. Upscale and mid-tier hotels will be the most affected due to supply concentration within these segments.
Of the hospitality S-REITs that Moody’s rates, OUE Hospitality Real Estate Investment Trust and Far East Hospitality Trust will witness the greatest pressure on their EBITDA levels, the report said.
Over at the industrial segment, Moody’s expects the new supply of warehousing space and business parks to outpace demand growth.
“Rental rates for business parks will be more resilient than that of warehousing space, given the higher proportion of pre-committed leases and the easing of new supply additions from 2017,” it said.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg.
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