Is it time to take profit on outperforming office REITs?

Rental growth will be capped soon.

Office REITs have been the market darlings in 2014, with office REIT stocks outperforming 7.5% against the REIT index and 13% against the STI.

However, the good times may be drawing to a close for these golden children. According to BNP Paribas, it may be time to take profit on office REITs as positives have been priced in by the market and new CBD offices are on their way in 2016.

“Office rents should continue to rise in 2015, with an increase of 10% y-y in 2015. That said, we believe this has been largely priced in by the market, as reflected in the share-price outperformance of office REITs in 2014. Looking ahead, new CBD offices that are due to come on the market in 2016 could lead to a flurry of leasing activity, starting as early as 2H15. This should cap rental growth in 2016,” stated BNP Paribas.