Singapore REIT Sector - URA 3Q15: Continued softening in rents


Retail rents decline, but retail REIT reversions remain positive
Central region's retail rents dipped 2% QoQ with median rents on Orchard falling 0.9% QoQ, while the rest of the city area and suburban rents declined by -2% and -2.1%, respectively. Retail REIT reversions slowed but still remained positive despite the lower industry rents. We believe the divergence is attributed to the superior quality and location of the malls under the REITs.

Strongest rent decline in office
For 3Q15, central region's office rents declined 2.9% QoQ (2Q15: -2.6% QoQ) due to persisting weak demand and concerns over upcoming oversupply. The decline was led by central area's rents declining 3.1% (-2.6% in 2Q15), while fringe rents fell 1.1% (-2.4% in 2Q15). 3Q15 net demand came in at 139,931 sq ft (678,126 sq ft for 9M15), and is likely to miss the annual historical average demand of 1 mn sq ft. Some of the key upcoming office building completions, Guoco Tower (est TOP mid-2016) and Marina One (est TOP 2017) remain fully uncommitted while Duo (est TOP 3Q16) is ~30% committed.

Slight softening in industrial prices and rents
3Q15's industrial rents softened by -0.8% QoQ (2Q: -0.7%) weighed down by the multi-user factory segment, which fell -1.1% QoQ (2Q: -1.2%), warehouse rents softened by -0.6% QoQ (2Q: -0.1%). 3Q15's rent reversions continued to moderate at MINT and MLT, however, AREIT bucked the trend posting reversions of +9.1% (2Q15: +6.6%). Industrial prices and rents softened by -0.3% QoQ and -0.8% QoQ, respectively.

Most benign on the retail sector followed by industrial as the stronger asset quality and location of the retail REIT assets will allow them to continue to post positive reversions amidst declining market rents. Our preferred picks are MCT followed by CMT and FCT. Amongst the industrial REITs we like KDC REIT, MINT and AREIT. (Read Report)

Source : Credit Suisse Asia Pacific Equity Research

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