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Singapore’s REIT sector saw rents decline across the board in Q3 2015, with the office sector registering the strongest decline, said Credit Suisse.
URA data showed that office rents in the central region fell 2.9 percent quarter-on-quarter in Q3 2015 as weak demand and upcoming oversupply concerns continue. The decline was led by central area’s rent dropping 3.1 percent, while fringe rents fell 1.1 percent.
Notably, net demand in Q3 2015 came in at 139,931 sq ft, and is likely to miss annual historical average demand of 1 million sq ft.
According to Credit Suisse, pre-leasing activities of large incoming office buildings like the Guoco Tower, Marina One and Duo have already started, but office space is yet to be pre-committed at Marina One and Guoco Tower, while Duo is around 30 percent committed.
Meanwhile, retail rents within the central region slipped by 2.0 percent quarter-on-quarter in Q3 2015, with median rents on Orchard dipping by 0.9 percent, while the rest of the city area saw rents fall 2.0 percent. Median rents outside the central area also declined by 2.1 percent.
“Despite the continued decline in rents, the retail REITs continued to record positive but slower rent reversions,” said Credit Suisse.
“We believe the divergence is attributed to the superior asset quality and location of the malls owned by the retail REITs.”
Industrial REITs, on the other hand, witnessed only a slight softening in rents at 0.8 percent quarter-on-quarter in Q3 2015 from 0.7 percent in Q2 2015. Specifically, rents at multi-user factory softened by 1.1 percent while warehouse rents dipped by 0.6 percent.
As a whole, rent reversion continued to moderate for industrial REITs, said Credit Suisse.
“AREIT however bucked the trend and saw strong rent reversions of +9.1 percent for Q2 FY2016 (+6.6 percent for Q1 FY2016) led by business & science parks (+13.2 percent), followed by light industrial (+5.5 percent).”
With this, Credit Suisse said that the drop in rent was “most benign on the retail sector followed by industrial as the stronger asset quality and location of the retail REIT assets will allow them to continue to post positive reversions amidst declining market rents.”
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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