SINGAPORE (July 21): Religare is staying positive on Singapore office REITs as the sector has posted an average YTD return of 16.9%.
This despite soft office fundamentals and a slowing GDP.
In a Friday report, analyst Ti Wee Pang says office vacancy has to rebound before rental follows.
From 1994 to date, there was only one period (4Q10-2Q11) when rental on a y-o-y basis rose while vacancy stood above 10%. Ti believes this phenomena was the result of a rebound in rental market after the global financial crisis.
Recently completed Grade-A office supply – Duo Tower, Tanjong Pagar Centre and Marina One – has achieved “respectable” commitment rates of 45%, 90% and 70% respectively.
“However, our ground checks reveal that new tenants for some of these spaces could take as long as six months to over two years before they move into these properties,” says Ti.
According to Cushman & Wakefield, prime office rental rose slightly by 1.7%, led by the Marina Bay offices in 2Q17.
Ti expects Grade-A office rental rate to be limited to about 5% in the coming 12 months as vacancy remains high.
The analyst’s top picks include CapitaLand Commercial Trust (CCT) and Keppel REIT (KREIT) with target prices of $1.50 and $1.02 respectively.
Both REITs are kept at “hold” as the two counters are fairly valued at this juncture.
Units in CCT and KREIT are trading at $1.74 and $1.16 respectively.
