OUE Commercial REIT suffers from lower renewed rents

They continue to decline as spot prices haven't recovered fast enough.

Renewed rents in OUE Commercial REIT's (OUECT) Singapore properties continued to decline as spot market office markets, whilst improved to $9.4 psf per month, have not recovered fast enough.

According to DBS Equity Research, as a result, signing rents at OUE Bayfront of $12-$12.5 psf per month were below average expiring rents of $12.79 psf per month.

One Raffles Plaza (ORP) also fell below the average expiring rents of $10.88 psf per month at $8.5-$10.5 psf per month.

At Lippo Plaza, OUECT achieved signing rents of $2.04-$2.52 (RMB9.7-RMB12) psm per day compared to average expiring rents of $2.12 (RMB)10.08 psm per day. On average, OUECT still reported negative rental reversions at the property.

Due to these negative rental reversions, average passing rents at OUE Bayfront, ORP, and Lippo Plaza fell to $11.43 psf per month, $9.4 psf per month, and $2.06 (RMB9.79) psm per day, from $11.85, $10.28, and $2.08 (RMB9.89) in 4Q2016 respectively.

DBS analyst Mervin Song said, "Going forward, OUECT guided that subject to how spot rents in Singapore improve in 2018, there remains risk of negative rental reversion. For Lippo Plaza, the trust remains cautious given an increase new supply in Shanghai."

In terms of renewals over the next few years, around 19.3%, 25.1% and 22.9% of leases by gross rental income are subject to renegotiation in 2018, 2019 and 2020 respectively

On a positive note, overall portfolio occupancy improved YoY to 96.8% from 94.8% in 4Q2016 with an increase in occupancy seen across all properties.

Occupancy at OUE Bayfront now stands at 98.2%, up from 97.7% at end 4Q16 and was stable QoQ.

ORP's occupancy jumped to 96.5% from 92.2% at end 4Q2016 but dipped from 97.3% at end 3Q2017.

Meanwhile, Lippo Plaza remains fully occupied but up from 94.5% at end 4Q2016.