Singapore office rents may see prolonged declines, says Daiwa

SINGAPORE — Singapore office rents may decline as much as 25 per cent in a prolonged slump that may last until the end of 2018, as demand slows, according to Daiwa Securities.

Daiwa expects 2018 to be a highly risky year for lease renewals and forecasts that rents will continue to fall until then, Mr David Lum, an analyst at the brokerage said in a note to clients. Mr Lum forecasts a 25 per cent drop in rents from the peak in the first quarter of 2015 through the fourth quarter of 2018, while predicting office values will slide 14 per cent during the same period.

Daiwa joins other analysts in forecasting declines for the Singapore office sector as the outlook for global economic growth remains cloudy and a large supply outstrips demand for prime space. Singapore prime office rents may fall up to 20 per cent this year after declining 15 per cent last year, according to Jones Lang LaSalle, while office values may see similar declines as rents this year after falling 6 per cent in 2015.

Mr Lum downgraded real estate investment trusts tied to offices to negative from neutral, and lowered all individual stock ratings to underperform from hold. Singapore office REITs have gained 4 per cent to 7 per cent this year, beating the 3 per cent gain in the FTSE Straits Times Real Estate Investment Trust Index and the 3 per cent decline in the benchmark Straits Times Index.

“We are concerned that their year-to-date performances are now at odds with the deteriorating fundamentals of the office sector, ” Mr Lum said, referring to office REITs. BLOOMBERG