Office rents to see the strongest growth in 2018

Rents of core office buildings in the central business district (CBD) edged up by 1.7 percent to $9.1 psf in Q3 2017 on a quarterly basis, reported the Singapore Business Review, citing figures from CBRE.As this is the first time that monthly rents increased over the past 10 quarters, OCBC Investment Research thinks that the office sector will see the strongest recovery in rents by next year due to a lower volume of new supply and improving macroeconomic fundamentals.In particular, the research house expects rents to grow further by five to 10 percent by 2018, following a 20.2 percent aggregate fall since its peak in Q1 2015.“However, negative rental reversions for office REITs are likely to persist in 2018 as rents for leases signed three years ago are still expected to be higher than our spot rents forecast,” said OCBC analyst Andy Wong Teck Ching.He also noted that the vacancy rate has trended upwards to 7.5 percent, indicating that occupants are consolidating and relocating to office spaces with better quality.In addition, the market could have already taken into account the rebounding office segment as real estate investment trusts (REITs) with significant office exposure are offering unattractive distribution yields. For instance, Bloomberg estimates show that the figures for CapitaLand Commercial Trust, Keppel REIT and Suntec REIT stand at 4.7 percent, 4.8 percent and 4.9 percent.Nevertheless, the office property market’s brighter prospect is being driven by the limited amount of completions next year compared to that in 2016.In fact, about 808,000 sq ft of office space is forecasted to enter the Central Area market by 2018, with an average supply of 695,000 sq ft being completed per annum over the next three years. Experts believe that this amount can be easily absorbed by the local office market as the global economy improves.Source: CommercialGuru, 4 Dec 2017