Singapore Office Rents Set to Surge in Late 2014: Southeast Asia

Singapore’s office rents are expected to surge at the end of 2014 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 in two decades, Lynette Leong, chief executive officer of the manager for CapitaCommercial Trust, said in an interview in Singapore yesterday.

Office rents in the business district rose in the past three months, the first gain since the fourth quarter of 2011, according to brokerage Colliers International. Singapore’s economy rose an annualized 15.2 percent last quarter from the previous three months, the fastest pace in more than two years, as services strengthened and manufacturing rebounded.

“I don’t think we’ll go back to the peak we experienced before the crisis, not so soon, anyway,” said Leong, who predicted a rebound in Singapore’s office rents in January. “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 2014 will be a very strong year.”

Singapore, a country smaller than the size of New York City, is drawing more companies as rents dropped in the past year. The city’s office costs slumped 16 percent in the past year, the most globally, according to a CBRE Group Inc. survey last month, making it cheaper than Asian locations including Hong Kong, Shanghai, Tokyo and Mumbai and Sydney.

Limited Supply

Leong estimates that Singapore’s annual supply of new office space will be lower than 1 million square feet in the next three years, down from the average 1.3 million square feet over the past 20 years.

“As we come to a point in time with very limited supply, we’ll see a sharper growth in rents,” she said in a Bloomberg Television interview with Haslinda Amin yesterday.

CapitaCommercial Trust fell 1.7 percent to S$1.45 at the close in Singapore, extending the decline this year to 14 percent, compared with the 3.5 percent drop in the measure tracking real estate investment trusts in the city-state. Half of the 24 analysts tracked by Bloomberg have buy recommendations, with four advising investors to sell.

“With key grade A buildings still under-rented, we expect positive reversions in 2014 and 2015, especially if market rents trend up,” Chong Kang Ho, an analyst at BNP Paribas Securities Singapore Pte, said in a July 17 report reiterating his buy recommendation on the stock.

Seeking Acquisitions

CapitaCommercial Trust is seeking acquisitions in Singapore and has “a lot of financial flexibility,” Leong said. The trust’s loans are 28.9 percent of assets, which gives it a S$1.2 billion ($948 million) “debt headroom” to fund purchases if it increases its borrowings to 40 percent, she said, adding that “it has to be a compelling acquisition.”

CapitaCommercial Trust is partly owned by CapitaLand Ltd., Southeast Asia’s biggest developer. It’s the biggest office REIT in Asia by market value after Nippon Building Fund Inc. and Japan Real Estate Investment Corp. in Japan, according to data compiled by Bloomberg.

CapitaCommercial Trust has 76 percent of its borrowings on fixed interest rates, which helps it hedge against any increase in borrowing costs, the trust said. It may seek to raise that, depending on its outlook for lending rates, Leong said.

“We are very encouraged by the recovery of the office market,” Leong said. “Right now, what we’re focused on doing is creating organic growth from leasing out vacant space and taking advantage of the recovery of the market.”

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