Bookmark & Share
Singapore could see office rents drop by 10 percent in 2016 and five percent in 2017, translating to low single-digit reversion of REITs in 2016 and some negative reversions in 2017, according to Credit Suisse.
Moreover, pressures for landlords may come from tenants eyeing to restructure leases mid-way through their leases for a lower rent but longer period, it said in a report following an investor luncheon with Chestertons.
“There has been a growth in demand from the social media/tech sector which don’t necessarily need to be based in the CBD but rents below S$10 per sq ft per month could incentivise them to remain,” it noted.
As to the 4.8 million sq ft of supply entering the market in the next two years, the Swiss financial institution said the concern for new offices will be the lack of demand from anchor tenants, or those looking for three to four floors of space, since most prospective tenants are looking at 10,000 to 20,000 sq ft areas.
Meanwhile, strong supply and a weak market will continue to push retail rents down by one to two percent per annum. However, this “still implies positive reversions of the REITs which should be better positioned given asset quality.”
Hospitality, on the other hand, is expected to face more pressure as regional neighbours, which account for 40 percent of total arrivals last year, find the city-state expensive.
Nonetheless, visitor arrivals for this year may be in line with last year’s 15.1 million, while RevPARs should remain under pressure next year.
“Mid-tier and economy class hotels face the largest headwinds as these tiers face the most incoming supply, and pressure from Airbnb.”
Warehouse emerged as the brightest spot for industrial as the industry benefits from e-commerce growth, while supply continue to be more manageable.
“However, we believe the logistics REITs could face occupancy pressures in the near term from SUA conversions,” said Credit Suisse.
As such, among the REITs, Credit Suisse expect the retail sector to continue to be the most stable. “Our preferred picks are CapitaLand Mall Trust and Mapletree Commercial Trust which trade at CY16 yields of 6.1 percent and 6.4 percent, respectively,~1 s.d. above historical average.”
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
Related Articles:
The Fullerton Hotel gazetted as Singapore's 71st national monument