Singapore - Comm Properties & REITS 01 (Oct 08 - Dec 12)

[winston]

Singapore office rentals to soften in early 2009-CBRE

SINGAPORE, Oct 2 (Reuters) - Singapore office rentals will soften in early 2009, a year sooner than expected, after rents plateaued and vacancies rose in the third quarter of 2008 amid global financial turmoil, CB Richard Ellis said on Thursday.

"We had earlier anticipated rents would only soften beyond 2010. With the events of the past few weeks, we believe that the correction has been fast-forwarded to early 2009," the property consultancy said in a report.

CBRE said vacancies for prime office space rose to 1.2 percent in the July-September period, up from 0.6 percent earlier this year, while rentals were static at S$16.10-S$18.80 per square foot per month compared to the first half of 2008.

Property prices and rents in Asia's financial centres of Hong Kong, Singapore and Tokyo are set to fall as banks scale back hiring and investments in the global financial turmoil.

[ID:nHKG120988] The downturn could hit Singapore's top office landlords such as City Developments , CapitaCommercial Trust and Suntec REIT .

[kennynah]

cock up man....a huge number of deutsche bank employees had to relocate from DBS Tower 2 just last month to Alexandra area.... now rental will soften.... what the happen to their corp affairs division???

[winston]

BUSINESS TIMES - Office capital values fell 2-3 per cent quarter on quarter in the third quarter of this year in areas such as Marina Centre, Anson Road and Tanjong Pagar as demand softened, according to a report.

[winston]

Office stocks are trading at an average 0.37x P/1H08 book NAV and 0.6x RNAVs, which have factored in a revised 35%
decline in capital values and rentals. Office reits and landlords that are trading well below replacement costs include
Singland, FCOT and Kreit.
While current valuations of office landlord stocks appear inexpensive against historical standards, we think it is still too early for a re-rating given that the recovery in credit markets looks to be long drawn and short term catalyst appears lacking as newsflow is likely to get worse before it gets better. We have lowered our RNAVs by 11-16% to reflect the lower assumptions.

We have also adopted a wider target discount of 50-60% for landlords and 20-30% for office reits and lowered price targets by 30-35%. On this basis, our call on the sector remains cautious and we have lowered our recommendation for Suntec Reit to Hold.

[millionairemind]

Other than Singland, who else is affected??

Key office rents fall
Rates are back to levels a year ago as landlords act to keep tenants
By Joyce Teo, Property Correspondent

AFTER rising steeply for several years, prime office rents are on the way down as landlords move to retain good tenants in uncertain economic times.

In the wake of the global financial crisis, which erupted in mid-September, these prime rents are now back to levels seen about 12 months ago.

They fell 5 per cent last month and could fall another 10 to 20 per cent over the next six months, according to consultancy Cushman & Wakefield.

Office rents in general started falling in the third quarter ended Sept 30, given the weaker economic outlook.

But the fall in net effective prime office rents was even more pronounced last month as landlords became more flexible in negotiating rents, experts said.

'It is almost as if it was the landlords who blinked first,' said managing director Douglas Dunkerley of Corporate Locations, which helps firms find office space.

'The reason we saw such a swift change is that landlords have gone out of their way to retain their current tenants who have lease renewals coming up over the next six months.'

He said the search firm is not seeing many 'distressed' relocations by tenants as many had moved to take advantage of cost-saving opportunities.

'But now, more landlords are recognising the market has changed and are determined to keep their tenants,' he said.

Latest estimates from Cushman & Wakefield show that gross prime office rents dropped 5 per cent from September to reach $14.05 per sq ft last month. This cut prime office rents to levels of a year ago, said its head of research services, Asia-Pacific, Mr Ang Choon Beng.

'The difference though is that a year ago, rents were being adjusted upwards every month and now rates are being adjusted downwards at almost the same speed,' said Mr Dunkerley.

Cushman & Wakefield already noted a quarter-on-quarter fall in prime office rents in the three months ended Sept 30 - a reversal from straight quarterly gains for more than four years prior to that.

The rent rises - which reached nearly 95 per cent a year in Raffles Place last year - slowed this year. Rents peaked around late August.

Government data also showed that office rents fell in the third quarter, though by a smaller 0.8 per cent. Knight Frank said earlier those figures reflected growing resistance by some tenants to renew leases at higher costs, given that the current economic uncertainty will impact business profits.

DTZ executive director Cheng Siow Ying said landlords are prepared to look at creative lease packages with rent-free periods so the effective rental rates are lower. Landlords have not had to give rent-free holidays in over two years, said Mr Dunkerley, adding that nearly every landlord cut asking rents last month.

But the market is generally more subdued now, with tenants in a wait- and-see mood, experts said.

Supply-wise, there are more choices now than just a few months ago, but the bulk of the fresh office space supply will come onstream from 2010. So, while the downward slide in office rents is expected to continue, the speed should slow temporarily till nearer to 2010, said Mr Dunkerley.

Still, Cushman's projection is for prime office rents to fall by up to 20 per cent in the next six months. 'Given the sharp run-up in prime office rentals over the past two years, we are circumspect about the current downward trend of prime office rentals,' said Mr Ang.

The rental moderation is 'ultimately healthy' for Singapore's long-term prospects as it lowers the overall cost of doing business here. The slide is also a signal to firms that the office rental market is efficient and can adjust quickly in a changing market, he said.

Mr Dunkerley is looking at a fall of possibly 20 to 30 per cent over the next 18 months, which would ensure Singapore remains an attractive business location and in good shape to compete with other major regional centres.

[millionairemind]

Published November 21, 2008

Office space returns seen in year ahead

(SINGAPORE) Savills Singapore reckons that some 450,000 square feet of Grade A office space - or 3.5 per cent of existing space in this sector - could be returned by tenants in the next 12 months.

The financial upheaval in the US and Europe will inevitably lead to consolidation in the financial services industry that could lead to companies shedding excess space, the property consultancy firm said in a report yesterday. This space could make its way into the market either as tenants return it to landlords or try to sub-let it themselves.

Market watchers say that space released by existing tenants will exacerbate the supply glut that is expected to emerge, as almost nine million sq ft of Central Business District office space is completed over the next four years. Of this, at least 80 per cent will be Grade A.

In its report, Savills said that the average Grade A asking monthly rent in Singapore slipped 1.2 per cent quarter-on-quarter in Q3 2008 - the first decline in four years.

The figure fell from a high of $15.10 per square foot (psf) in Q2 this year to $14.92 psf in Q3.

The decline was on a 3.3 per cent drop in asking rent in Tanjong Pagar and a 0.91 per cent drop in the Orchard area. But asking rents held firm in Q3 for Raffles Place, City Hall/Marina Bay and Beach Road/Middle Road. And in Shenton Way, they actually rose 2.2 per cent.

'Many landlords have become more realistic in their asking rents, and are more open to incentives (for example, longer rent-free periods, free car-parking) to attract and retain quality tenants,' Savills said.

It predicts that Grade A office rents are likely to ease 5 to 10 per cent in Q4 this year and a further 15-20 per cent in 2009 as demand weakens.

The average Grade A office capital value slid 4.3 per cent quarter-on-quarter to $2,680 psf in Q3. This is the first drop in three years.

[kennynah]

the flip side to this is that existing rentals will come down and this can lower operational costs for businesses...

[winston]

BUSINESS TIMES - Banks and other firms are trying to sublet about 200,000 square feet of office space they no longer need after downsizing their Singapore operations, according to Knight Frank director of business space (office) Agnes Tay.

They may offer another 400,000 to 500,000 sq ft of space between now and end-2009 as retrenchments continue.

[millionairemind]

Published December 8, 2008

CCT, Suntec, Parkway Reits pick of analysts
Reasons include strong parentage, minimal near-term refinancing risks
By UMA SHANKARI


TWO research firms - Nomura and CIMB - have issued 'buy' calls on CapitaCommercial Trust (CCT) in recent reports.

Suntec Reit and Parkway Life Reit were also picked as good buys in the local real estate investment trust (reit) market.

In a report last Wednesday, Nomura Research said that office sector reits are its top picks. 'Our valuation diagnosis suggests the market's somewhat morbid assessment is more than pricing in such concerns in the office sector and we retain our 'buy' calls on CapitaCommercial Trust and Suntec Reit,' it said.

Weaker demand is likely to see office rents fall by almost half to a trough in 2011, Nomura predicted. But CCT has already renewed leases due even in FY 2009-2010. This, plus rental support from One George Street until FY 2013 and minimum rent at Raffles City until FY 2011, should provide stability to about half of the rental income stream despite the office downcycle.

Given CCT's strong corporate profile and parentage, Nomura is also confident that debt will be refinanced, though the cost is likely to be significantly higher. Nomura has a target price of $1.14 on CCT, which closed at 62.5 cents last Friday.

For Suntec Reit, Nomura expects office reversions to remain positive in FY 2009-2010 despite the overall weaker market and for Suntec City Mall to hold its own against growing competition.

'With the $700 million CMBS (collateralised mortgage-backed securities) loan not due until next December, near-term refinancing risks are minimal,' Nomura's note concluded. The firm has a target price of 90 cents on Suntec Reit, which ended last Friday at 63.5 cents.

CIMB's top reit picks are CCT and Parkway Life Reit, it said in a report last Friday. 'From the refinancing deals announced in October and November, we conclude that reits with strong sponsors, particularly Government-linked sponsors, low leverage and quality portfolios, are more likely to secure bank loans, which are the preferred refinancing option,' said CIMB analyst Janice Ding.

CCT is sponsored by CapitaLand, which is a Temasek-linked company. CIMB has a target price of $1.17 on CCT.

Parkway Life Reit, on the other hand, was chosen for its stable income stream from Parkway Holdings, the reit's major tenant and operator, which remained profitable throughout the last two recessions in 1998 and 2002. CIMB has a target price of $1.30 on the reit, which closed at 71.5 cents last Friday.

[millionairemind]

Published December 11, 2008

Prime office rentals coming down to earth
Q4 sees them crash by up to 20% in some cases as tenants call the shots
By KALPANA RASHIWALA

(SINGAPORE) Landlords may be frowning but those looking for office space have reason to cheer. After climbing steadily for nearly four years, average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in the fourth quarter of this year over the preceding quarter, according to latest figures by CB Richard Ellis.

Grade A covers the best office space within CBRE's prime office space basket.

The Q4 decline means that for the whole of this year, the estimated fall in rentals is around 13 per cent for Grade A space and 14 per cent for prime space. 'Modest rental growth featured in the early part of 2008, but the market had peaked by Q3 2008. It was only in Q4 that the sheer depth of the financial crisis pitched the office market into decline,' CBRE executive director Moray Armstrong said.

'We expect further downward pressure on rents through 2009,' he added without elaborating.

The firm estimates the average monthly Grade A office rental value at the end of this year at about $15 per square foot, down from $18.80 psf in Q3. The average prime office rental value in Q4 is estimated to have eased to $12.90 psf from $16.10 psf in Q3. The Q3 figures were unchanged from the preceding three months.

The latest figures confirm that the office upcycle which had seen rents galloping over the past two years has ended.

Office rents nearly doubled last year, rising 96 per cent for Grade A category and 92 per cent for prime space. That was on top of respective gains of 53 and 50 per cent posted in 2006.

Putting the latest rental slide in perspective, Mr Armstrong said: 'The extraordinary pace of rental growth experienced through the past three years was clearly not sustainable and would have been arrested by the increased volume of new supply in the pipeline. We had already anticipated a supply-led softening in the market from 2010 onwards.

'The rapid deterioration in the economy and loss of business confidence have accelerated the process as office demand has dried up.'

Tenant retention is the top priority for existing landlords. Next year is likely to be a market where lease renewals outnumber relocations, Mr Armstrong says.

Cushman & Wakefield Singapore managing director Donald Han predicts Grade A office rents will weaken a further 10-15 per cent in first-half 2009 from current levels. 'Landlords are more keen to provide existing tenants with an incentive to retain them, in terms of rental discounts during lease renewal negotiations; because if they leave, the landlord will suffer downtime until it finds a replacement tenant that will also have to be given fitting-out time. This means loss of rental income.'

The office rental slide reflects a reversal of the market dynamics to a more demand-led rather than a supply-led model, Mr Han argues. 'Office rents had surged because of a shortage of existing office stock; now rents are softening because of weakening demand,' he explains.

Another seasoned market watcher said while a 20 per cent drop in Q4 rentals seems alarming, the absolute drop of about $3.20 to $3.80 psf in monthly rents is not so, given that 'rents were at artificially high levels' on the back of shortage of existing Grade A and prime space.

Grade A vacancy rates had been sub-1 per cent for almost two years before rising to 1.2 per cent in Q3. Some analysts estimate this will rise further to over 2 per cent by end-2008.

CBRE does not expect to see significant changes in vacancy levels until sizeable new office developments start to be completed from 2010.

Tenants, meanwhile, are looking to contain costs during the economic downturn, Cushman's Mr Han observes.

CBRE's Mr Armstrong says: 'Corporates will be under severe pressure to contain and indeed reduce costs. (But) the reality in the Singapore office market is that many tenants with renewals and rent reviews next year under leases committed three to four years ago will still be faced with rents that could potentially increase by 75 per cent to 150 per cent. We expect some fairly robust negotiations.'

He also predicts an increase in subletting and surrenders of space by tenants if job attrition in the key financial services sector spirals.

'Take-up in new developments will inevitably be sluggish until demand improves and tenants are able to secure capital expenditure approvals to relocate. It will be highly competitive,' Mr Armstrong says.