CapitaCommercial Says Space Crunch to Spur Rents: Southeast Asia

Singapore’s office rents are set to rise as much as 15 percent this year on increased demand and a dearth of new developments, said Lynette Leong, chief executive officer of CapitaCommercial Trust Management Ltd.

Global companies including Cargill Inc., the biggest U.S. agricultural firm, and Bordier & Cie, a Swiss private bank’s local subsidiary, are driving the recovery as they set up offices in the central business district, said Leong, whose company manages the biggest office trust in Asia outside Japan.

“I see an acceleration in rents coming in the second half, as there is no new supply next year and tenants will feel the crunch when they realize there is no new supply,” Leong said in an interview in Singapore on April 21. “Rents for our portfolio have already increased by 5 percent in the first quarter compared to a year ago.”

Office rents in Singapore, ranked the most affordable of the top five major financial centers by Cushman & Wakefield Inc., is rebounding as robust demand amid high occupancy rates reinforce landlords’ bargaining power. Rents in the island-state’s central business district are expected to rise as much as 15 percent this year, broker DTZ Holdings Plc said April 3.

CapitaCommercial will review terms for tenants making up 9 percent of gross rental income this year, Leong said.

“We expect office REITs to surprise on the upside with stronger occupancy and rates,” Regina Lim, the Singapore-based head of Asian property research at Standard Chartered Plc, said in a note to clients April 11.

Marina Bay

Average rents in the newer Marina Bay area, which holds premium-grade buildings, increased by 4.5 percent to S$11.50 ($9.20) a square foot per month in the three months to March from the previous quarter, according to DTZ. Office occupancy rates in the March quarter rose 0.4 percentage points to 95.1 percent from the previous quarter, DTZ said.

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 Japan’s Nippon Building Fund Inc. and Japan Real Estate Investment Corp., according to data compiled by Bloomberg. The trust declined 0.6 percent to S$1.595 at the close of trading in Singapore, paring year-to-date gains to 10 percent. The measure tracking real estate investment trusts in the island-state has advanced 4.6 percent this year.

The REIT owns a 40 percent stake in CapitaGreen, a 700,000-square-foot office tower in the older Raffles Place financial district that’s expected to be completed at the end of the year. The trust manager has commitments for about 12 percent of the 40-story building built on the site of an old parking garage. The landlord, which has three tenants, expects to sign new tenants for half of the space by year-end, Leong said.

Higher Rents

Cargill, CapitaGreen’s first tenant, will pay a rent of more than S$9 per square foot a month, the Business Times reported April 11. That’s about 10 percent more than expected by Standard Chartered’s Lim, according to a note to clients. The new office tower could have tenant commitments of between 50 percent and 80 percent by September, Lim estimates.

CapitaCommercial may buy the 60 percent stake it doesn’t own in CapitaGreen, which would become its largest asset by income and raise the proportion of grade-A assets in its portfolio to 33 percent, according to Standard Chartered. CapitaLand and a unit of Mitsubishi Estate Co. are the other owners of CapitaGreen.

“We have a call option to acquire the remaining 60 percent of CapitaGreen from our partners between next year and 2017, so that’s a clear pipeline for us,” Leong said.

She’s sticking to her forecast made in January last year, when she said rents were set to rebound as supply shrinks and more businesses expand.

Short-Term Mismatch

Rents in the central business district rose 8.4 percent in the fourth quarter of 2013 from the same period year earlier, according to broker Jones Lang LaSalle Inc. In the fourth-quarter of 2012, they declined by 9.5 percent from a year earlier period, the broker said.

There is a short-term mismatch in the demand and supply of office space, which will be positive for a rental increase, Chua Yang Liang, head of research for Singapore and Southeast Asia for Jones Lang LaSalle, said in a phone interview. The supply of new office space this year will be about 112,000 square meters (1.2 million square feet), with no new developments in 2015, he said. An additional 296,000 square meters will be added in 2016.

“The recovery is on track,” Chua said. “The demand is coming from all segments of the economy, unlike in the past which was more from the financial institutions.”

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