Supply crunch likely to drive office rents up this year

20140424-st-supply-crunch-drive-office-rents-up A SHORTAGE of new supply coming onto the market next year will likely drive office rents up in the later half of this year, said commercial property landlords yesterday.

Their forecast came as two real estate heavyweights report strong office leasing demand, underlining the squeeze on supply.

Office rents could rise as much as 15 per cent this year as more global firms set up shop in the central business district, according to CapitaCommercial Trust chief Lynette Leong.

"I see an acceleration in rents coming in the second half, as there is no new supply next year," she said in a report by Bloomberg yesterday.

"Rents for our portfolio have already increased by 5 per cent in the first quarter compared to a year ago."

CapitaCommercial Trust is the biggest office real estate investment trust (Reit) in Asia outside Japan, and holds properties such as Capital Tower and Wilkie Edge.

It is also developing CapitaGreen, where American agriculture firm Cargill was recently said to have inked a deal to lease nearly 50,000 sq ft.

Office rents have been falling since 2011 and stayed mostly stagnant in the first three quarters of last year. But they appear to be on the rise now due to limited supply of space.

Two commercial Reits that reported results yesterday posted a rise in distribution per unit (DPU) for the three months to March 31.

Fourth-quarter DPU at Mapletree Commercial Trust (MCT) rose 12.4 per cent to 1.953 cents while the DPU for the second quarter at Frasers Commercial Trust (FCT) was up 3 per cent to 2.05 cents from the year before.

MCT said the purchase of Mapletree Anson in February last year boosted the Reit's performance.

Distributable income for the quarter was 17.1 per cent higher at $40.7 million, on the back of a 15.2 per cent climb in net property income to $50.8 million from the year before. Gross revenue grew 12.9 per cent to $68.6 million from the preceding year.

Its distributable income for the full year to March 31 was up 23.8 per cent at $153 million and net property income leapt 25.2 per cent to $195.3 million. Gross revenue shot up 21.7 per cent to $267.2 million.

The Reit noted strong leasing demand at PSA Building, which it holds; most tenants renewed their leases and some expanded within the building.

It also owns VivoCity. Strong operating performances at VivoCity and PSA Building lifted its asset value by 5.3 per cent from the preceding year to $4.03 billion as at March 31 this year, it said.

At FCT, however, quarterly earnings were dragged down by a weak Australian dollar.

Distributable income rose 5.6 per cent to $13.8 million for the second quarter but net property income for the three months to March 31 fell 5.8 per cent to $21.7 million and gross revenue slipped 3.7 per cent to $28.6 million from the preceding year.

The revenue drop was partly due to the weak Australian dollar, the trust said yesterday, adding that gross revenue for its Singapore properties actually grew 4.2 per cent in the quarter from the year before.

Mr Low Chee Wah, the trust manager's CEO, said its performance was bolstered by higher occupancy and rents at China Square Central.

MCT units closed flat at $1.255. FCT units were also unchanged at $1.295 yesterday.

melissat@sph.com.sg

Source: Straits Times, 24 Apr 2014