Office occupancy rate feared to shrink to 88-90% come 2016-2017

How will rents be impacted?

According to Maybank Kim Eng, they see net absorption in 2014-2015 mostly balancing out previous outstanding and new incoming supplies, resulting in an occupancy rate of 90-92% for the Downtown Core area (4Q13: 90%). 

Come 2016-2017 however, we expect occupancy rate to slide to 88-90% as ~5m sq ft of new office space comes on-stream.

Here's more from Maybank Kim Eng:

With vacancy rate tipped to rise only in 2016, we see rents edging up a modest 3% in 2014 and 5% in 2015 before declining 2% in 2016.

We also expect capital values to hold up at SGD2,424 psf in 2014 and SGD2,472 psf in 2015 (2013: SGD2,400 psf) before softening to SGD2,448 psf in 2016 with the onslaught of 3.84m sq ft of new office supply in that year.

CapitaCommercial Trust (CCT) and Keppel REIT (KREIT) have all their Singapore properties in the Central Area, amounting to, respectively, 2.9m sq ft and 2.4 m sq ft of attributable net leasable office area.

In terms of AUM, the Singapore assets constitute 100% of CCT’s and 88% of KREIT’s investment properties. (KREIT also has five Australian properties.) We reiterate our Neutral stance on the office REITs sector, with HOLD calls on CCT (TP SGD1.50) and KREIT (TP SGD1.25).