SINGAPORE'S office rents are expected to surge at the end of next year after extending a "modest" rebound that started in the second quarter, according to the biggest office trust in Asia outside Japan.
The recovery will be led by companies seeking to set up regional headquarters in Singapore as they face the lowest supply of office space in two decades, Ms Lynette Leong, chief executive officer of the manager for CapitaCommercial Trust, said in an interview on Thursday.
Office rents in the business district rose in the past three months, the first gain since the fourth quarter of 2011, according to brokerage Colliers International.
"I don't think we'll go back to the peak we experienced before the crisis, not so soon anyway," said Ms Leong, who predicted a rebound in Singapore's office rents in January.
"Given that the supply is going to be very limited in the next three years, it will be quite sharp at the tail end. Towards the end of 2014 will be a very strong year."
Singapore is drawing more companies as rents dropped in the past year.
The city's office costs slumped 16 per cent in the past year, the most globally, according to a CBRE Group survey last month, making it cheaper than Asian locations, including Hong Kong, Shanghai, Tokyo, Mumbai and Sydney.
Ms Leong estimates that Singapore's annual supply of new office space will be lower than one million sq ft in the next three years, down from the average 1.3 million sq ft over the past 20 years.
"As we come to a point in time with very limited supply, we'll see a sharper growth in rents," she said in a Bloomberg Television interview.
CapitaCommercial Trust units yesterday fell 1.7 per cent to $1.45, extending the decline this year to 14 per cent, compared with a 3.5 per cent drop in the measure tracking real estate investment trusts in Singapore.
Half of the 24 analysts tracked by Bloomberg have "buy" recommendations, while four advise investors to sell.
"With key Grade A buildings still under-rented, we expect positive reversions in 2014 and 2015, especially if market rents trend up," Mr Chong Kang Ho, an analyst at BNP Paribas Securities Singapore, said in a July 17 report reiterating his "buy" recommendation on the stock.
CapitaCommercial Trust is seeking acquisitions in Singapore and has "a lot of financial flexibility", Ms Leong said. The trust's loans are 28.9 per cent of assets, which gives it a $1.2 billion "debt headroom" to fund purchases if it increases its borrowings to 40 per cent, she said, adding that "it has to be a compelling acquisition".
CapitaCommercial Trust is partly owned by CapitaLand, South-east Asia's biggest developer.
It is the biggest office Reit in Asia by market value, after Nippon Building Fund and Japan Real Estate Investment in Japan, according to data compiled by Bloomberg.
CapitaCommercial Trust has 76 per cent of its borrowings on fixed interest rates, which helps it hedge against any increase in borrowing costs, the trust said.
It may seek to raise that, depending on its outlook for lending rates, Ms Leong said.
"We are very encouraged by the recovery of the office market," she said. "Right now, what we're focused on doing is creating organic growth from leasing out vacant space and taking advantage of the recovery of the market."
Source: Straits Times, 20 Jul 2013