Singapore office rents seen rising up to 15% this year

Singapore's office rents are set to rise as much as 15 per cent this year on increased demand and a dearth of new developments, said Lynette Leong [SINGAPORE] Singapore's office rents are set to rise as much as 15 per cent this year on increased demand and a dearth of new developments, said Lynette Leong, chief executive officer of CapitaCommercial Trust Management Ltd.

Global companies including Cargill Inc, the biggest US agricultural firm, and Bordier & Cie, a Swiss private bank's local subsidiary, are driving the recovery as they set up offices in the central business district, said Ms Leong, whose company manages the biggest office trust in Asia outside Japan.

"I see an acceleration in rents coming in the second half, as there is no new supply next year and tenants will feel the crunch when they realise there is no new supply," Ms Leong said in an interview on Monday. "Rents for our portfolio have already increased by 5 per cent in the first quarter compared to a year ago."

Office rents in Singapore, ranked the most affordable of the top five major financial centres by Cushman & Wakefield Inc, are rebounding as robust demand amid high occupancy rates reinforce landlords' bargaining power.

Rents in the island- state's central business district are expected to rise as much as 15 per cent this year, broker DTZ Holdings said on April 3.

CapitaCommercial will review terms for tenants making up 9 per cent of gross rental income this year, Ms Leong said.

"We expect office Reits to surprise on the upside with stronger occupancy and rates," Regina Lim, the Singapore-based head of Asian property research at Standard Chartered plc, said in a note to clients on April 11.

Average rents in the newer Marina Bay area, which holds premium- grade buildings, increased by 4.5 per cent to $11.50 a square foot per month in the three months to March from the previous quarter, according to DTZ.

Office occupancy rates in the March quarter rose 0.4 percentage points to 95.1 per cent from the previous quarter, DTZ said.

CapitaCommercial Trust is partly owned by CapitaLand Ltd, South-east Asia's biggest developer. It's the biggest office Reit in Asia by market value after Japan's Nippon Building Fund Inc and Japan Real Estate Investment Corp, according to data compiled by Bloomberg.

The trust declined 0.6 per cent to $1.595 at the close of trading in Singapore yesterday, paring year-to-date gains to 10 per cent. The measure tracking real estate investment trusts in the island-state has advanced 4.6 per cent this year.

The Reit owns a 40 per cent stake in CapitaGreen, a 700,000 square foot office tower in the older Raffles Place financial district that's expected to be completed at the end of the year. The trust manager has commitments for about 12 per cent of the 40-storey building built on the site of an old multi-storey car park.

The landlord, which has three tenants, expects to sign new tenants for half of the space by year-end, Ms Leong said.

Cargill, CapitaGreen's first tenant, will pay a rent of more than $9 per square foot a month, The Business Times reported on April 11.

That's about 10 per cent more than expected by Standard Chartered's Ms Lim, according to a note to clients.

The new office tower could have tenant commitments of between 50 and 80 per cent by September, Ms Lim estimates.

CapitaCommercial may buy the 60 per cent stake it doesn't own in CapitaGreen, which would become its largest asset by income and raise the proportion of grade-A assets in its portfolio to 33 per cent, according to Standard Chartered. CapitaLand and a unit of Mitsubishi Estate Co are the other owners of CapitaGreen.

"We have a call option to acquire the remaining 60 per cent of CapitaGreen from our partners between next year and 2017, so that's a clear pipeline for us," Ms Leong said.

She's sticking to her forecast made in January last year, when she said rents were set to rebound as supply shrinks and more businesses expand.

Rents in the central business district rose 8.4 per cent in the fourth quarter of 2013 from the same period a year earlier, according to broker Jones Lang LaSalle Inc. In the fourth-quarter of 2012, they declined by 9.5 per cent from the year earlier period, the broker said.

There is a short-term mismatch in the demand and supply of office space, which will be positive for a rental increase, Chua Yang Liang, head of research for Singapore and South-east Asia for Jones Lang LaSalle, said.

The supply of new office space this year will be about 112,000 square meters, with no new developments in 2015, he said.

An additional 296,000 sq meters will be added in 2016.

"The recovery is on track," Mr Chua said. "The demand is coming from all segments of the economy, unlike in the past which was more from the financial institutions." - Bloomberg

Source: Business Times, 24 Apr 2014