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OCBC Investment Research expects office rents in the city-state to hit rock-bottom this year, reported Singapore Business Review.
“We believe the office market may be stabilising, and forecast a smaller pace of rental dip of five percent to 10 percent in 2017, as compared to the 13.1 percent fall in 2016.”
Previously, monthly rents of core Grade A office space in the Central Business District (CBD) dipped 2.2 percent quarter-on-quarter to $9.10 psf during Q4 2016. This marked the seventh consecutive quarterly fall from the peak of $11.40 psf in Q1 2015, but it was nearly similar to the 2.1 percent slide in Q3 2016.
Meanwhile, the 13.1 percent drop in office rents last year led to more negative reversions for real estate investment trusts (REITs) with office properties.
For instance, Keppel REIT recorded a rental reversion of nine percent in FY2016, with its average signing rent hitting $9.60 psf per month for its offices in Singapore.
“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,” said OCBC.
Similarly, OUE Commercial REIT posted rental reversions of three percent for One Raffles Place and 10.1 percent for OUE Bayfront, while Lippo Plaza in Shanghai clocked in a positive figure of 9.3 percent.
For Starhill Global REIT, its office properties in Orchard Road saw rental reversions of 1.6 percent, while occupancy slid 4.1 percentage points to 95.9 percent partly due to tenants from the oil and gas industry downsizing or vacating their premises.
OCBC also noted that Suntec REIT’s average monthly rent dipped from $8.86 psf to $8.65 psf.
On the other hand, CapitaLand Commercial Trust (CCT) saw average gross office rent increase 3.4 percent year-on-year to $9.20 psf per month in Q4 2016, but it slightly declined 0.2 percent on a quarterly basis. OCBC pointed out that CCT’s situation shows that it’s more difficult to achieve positive rental reversion, given the downward pressure on rents amidst stiff competition.
“However, not all is doom and gloom, as the Singapore office market registered a second consecutive quarter of positive net absorption islandwide in Q4 2016. With supply pressures easing by end-2017, we expect office rents to bottom out correspondingly, barring any unforeseen circumstances,” noted OCBC.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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