SINGAPORE (Sept 4): OCBC Investment Research is maintaining its “hold” call on Frasers Commercial Trust (FCOT) with an unchanged fair value of $1.42.
In a Monday report, lead analyst Joseph says he sees a positive outlook for FCOT’s prospects, particularly in the Australian market where Melbourne’s CBD office vacancy rate has notably improved this year, according to data from Colliers International.
With vacancy rates in Melbourne expected to fall below 4.5% over the next two years, Ng highlights that pressures on incentives are a likely outcome which would in turn, improve effective rents for the office property industry in 2018.
“In Perth, the CBD office market appears to be bottoming. An improvement in net absorption has been observed, with most of the absorption stemming from the premium space, due to increased average incentives of 3.25 ppts y-o-y to 48.25% in June 2017,” says the analyst.
“A ‘flight to centrality’ trend has also seen a significant portion of absorption arising from tenants migrating from suburban/fringe locations. FCOT with office assets in both cities, should benefit from these tailwinds,” he adds.
However, Ng stresses that the research house’s “hold” rating remains due to the uncertainty of Hewlett Packard’s (HP) lease expiries at the trust’s Alexandra Technopark property, which he believes will continue to weigh on its unit price performance – even if HP’s consolidation of its existing operations in Singapore, if any, is unlikely to be drastic.
“While rationalisation of [HP’s] space is possible, we deem it unlikely that HP will relocate their existing operations spanning ~2.1m sqft across Singapore entirely to the new build-to-suit project at Telok Blangah, which has a total gross floor area (GFA) of 824.5k sq ft,” says Ng.
As at 11.37am, units in FCOT are trading flat at $1.40.
