Office rents ‘set to soar next year’

SINGAPORE — Office rents in Singapore are expected to surge 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 in office space here in two decades, Ms Lynette Leong, Chief Executive of the manager for CapitaCommercial Trust (CCT), said yesterday on Bloomberg TV.

“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 next year will be a very strong year,” said Ms Leong.

She estimates Singapore’s annual supply of new office space will be lower than one million square feet in the next three years, down from the average 1.3 million sq ft over the past 20 years.

Office rents in the business district rose in the past three months, the first gain since the fourth quarter of 2011, according to real estate brokerage Colliers.

Singapore’s economy rose an annualised 15.2 per cent last quarter from the previous three months, the fastest pace in more than two years, as services strengthened and manufacturing rebounded.

Singapore is drawing more companies after office rents slumped 16 per cent in the past year, the most globally, according to a survey by property firm CBRE last month, making it cheaper than other Asian cities, including Hong Kong, Shanghai and Tokyo.

CCT 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 S$1.2 billion “debt headroom” to fund purchases if it increases borrowings to 40 per cent, she said, adding that “it has to be a compelling acquisition”.

CCT has 76 per cent of its borrowings on fixed interest rates, which helps it hedge against any increase in borrowing costs. The trust may seek to raise that, depending on its outlook for lending rates, Ms Leong said.

CCT is partly owned by CapitaLand, South-east Asia’s biggest developer. It is the biggest office real estate investment trust in Asia by market value after Nippon Building Fund and Japan Real Estate Investment in Japan, according to data compiled by Bloomberg.

BNP Paribas Securities analyst Chong Kang Ho, who has a “Buy” rating on CCT, said: “With key grade A buildings still under-rented, we expect positive reversions in 2014 and 2015, especially if market rents trend up.” BLOOMBERG