HSBC's rent in 21 Collyer Quay climbed 36% to $27.7m after lease extension

As HSBC is extending the lease for only one year, this indicates a high likelihood that the company will be vacating 21 Collyer Quay in 2020.

CapitaLand Commercial Trust (CCT) has signed a one-year lease extension for its entire 21 Collyer Quay property with HSBC. The new lease will start on 30 April 2019, with total rent payable by HSBC amounting to $27.7m.

The new rent is 36% higher than the original rent of $20.4m per annum or $8.50 psf/month, DBS Equity Research noted. “This news is a disappointment as we had originally assumed that HSBC would extend its lease for a longer period although the rent for the one-year extension is higher than the $10 psf/month rent we had projected upon renewal by HSBC,” said analyst Mervin Song.

Meanwhile, OCBC Investment Research analyst Wong Teck Ching Andy said, “Although the extension is only for a year, we see this as a slight positive, as it removes the near-term uncertainty over whether HSBC would be vacating the building when its previous lease expires in April next year.”

As HSBC is extending the lease for only one year, this indicates a high likelihood that the company will be vacating 21 Collyer Quay in 2020, Song said. “The potential buildings that HSBC could move into are the redeveloped CPF building (Ascendas Singbridge), 8 Penang Road (Suntec and Singhaiyi JV), and Funan (CapitaLand Mall Trust), all of which could accommodate its space requirements and are scheduled to be completed over 2019/2020,” he added.

Meanwhile, CCT highlighted that it is evaluating options for the property after 2020, including refurbishment & re-letting and redevelopment & divestment. “We see a third possibility, which is a further two-year lease extension closer to the expiration of this new lease, as HSBC may potentially consider moving its premises to the upcoming Central Boulevard site which is expected to come on-stream in 2022,” Wong said.

“Alternatively, given the higher demand for office buildings in Singapore with recent transactions at ‘tight’ yields, there is potential for CCT to sell the building above book value to demonstrate the conservative valuation of its buildings,” Song concluded.