Office sector struggles amidst CBD rents plummeting by 4%

Office rents came in at just $9.50 psf/month.

Although the office sector of the real estate investment trust (REIT) is relatively on a stable position compared to others, it has consistently sustained jabs from the declining Core Business District (CBD) office rents.

According to OCBC research, office rental in CBD sinks 4% to $9.50 per sq ft, representing five consecutive quarters of sequential decline.

In the first quarter of this year, average monthly gross rents fell by 3.9% from the last quarter to $9.90 per sq ft.

"Other downbeat data points include a fourth straight quarter of negative islandwide net absorption, which stood at -74,741 sq ft in 2Q16," OCBC said in its report.

The office sector posed an average DPU growth of 5.2%, with OUE Commercial REIT gaining the most growth at 34.7%.

Meanwhile, the report noted noted that office REITs have exerted efforts on their renewal strategies to further bring down their lease expiry profile for the remainder of 2016.

For instance, Suntec REIT had 1.8% and 17.4% of its office leases expiring in 2016 and 2017 as of the end of June against 6% and 19.7% a quarter ago.

Keppel REIT has also successfully simmered down its lease expiry profile from 3.2% and 11.5% to 0.6% and 9.5%.

OCBC also pointed out that the share prices of REITs have largely performed well year-to-date, with CapitaLand Commercial Trust, Keppel REIT and Suntec REIT seeing 15.6%, 15.1% and 9.0% appreciation in their stock value.

However, OCBC remained cautious, saying there the low pre-commitment levels as large amount of new office supply draws nearer to completion might further pull down rents.

"However, we remain cautious as the large amount of new office supply draws nearer to completion, while pre-commitment levels continue to be relatively low. This is likely to exert further downward pressure on rents in our view," OCBC explained.