Ascendas REIT's lucrative business parks under threat from acute space oversupply

The market will add 1.7m of space in two years.

Ascendas REIT's profit-making business parks are at risk from an intensifying industrial space glut.

According to Maybank Kim Eng, the market will add 1.7m of space in the next two years, which far exceeds the average annual demand of 0.7m square feet.

"We estimate 86% of this supply is not built to suit. Notable projects are one-north’s Futuris, Synthesis, Kenesis and Mapletree Business City Phase 2. The quality of this supply is exceptional. It will be centrally located, with live/work/play environments. We expect A-reit’s portfolio in Jurong, Science Park and Changi to be given a run for its money," stated the report.

Business parks aren't A-REIT's only sore spot. Its factories and warehouses are also vulnerable, as demand is tepid while supply is exceptionally strong.

Business parks make up 35% of A-REIT's net property income, while factories make up 41% and warehouses comprise 19.6% of its portfolio.

"In total, 92% of its portfolio will face competitive heat. We are wary of DPU disappointments from competition," noted Maybank Kim Eng.