Tight vacancies in CBD offices to drive Suntec REIT's gains

Suntec City Office, MBFC, and ORQ could benefit from positive office rental reversions.

Suntec REIT’s office portfolio will see continued gains driven by limited supply within the core central business district (CBD) and upcoming revenue contribution from new developments, according to UOB Kay Hian.

Although the REIT’s distribution per unit (DPU) decreased 5.1% YoY in Q3, revenue from Suntec City Office grew 4.1% YoY whilst contribution from Marina Bay Financial Center (MBFC) expanded 18% YoY. The recently acquired 55 Currie Street also made a maiden contribution of $0.9m in Q3.

Suntec City Office, MBFC and One Raffles Quay (ORQ) will all further benefit from positive rental reversion for offices in Singapore, noted UOB Kay Hian. An earlier report by Edmund Tie & Co. stated that CBD office supply will hit only 3.3 million sqft in 2022, which is about half of the past three and five-year average net supply. In H2 2019, CBD office development pipeline would only reach 0.5 million sqft in H2.

Meanwhile, committed occupancy for the REIT’s Singapore office portfolio also stood at 99% as of September. 

Partnered with a strong demand, this tight supply and high occupancy will drive revenue upward. A separate report by Colliers expects CBD Grade A office rents to grow a further 8% in 2019 and 5% in 2020, from expanding 15% in 2018.

Already, new and renewal leases with NLA of 147,000 sqft were signed in Q3, the sixth consecutive quarter of positive rent reversion. Committed rents also rose up to 34% higher than expiring rents, at $9.50-11.00psf.

Also read: REITs defy downturn on tight office supply

Development projects 9 Penang Road and 477 Collins Street are also scheduled to complete in Q4 and mid-2020, respectively. 9 Penang Road, comprised of two office towers with NLA of 381,000 sqft, was already 100% pre-leased to UBS with target occupation in H2 2020. Negotiations are already in progress for the two towers’ retail component, which will predominantly be F&B.

Its Melbourne property Olderfleet at 477 Collins Street also reported a pre-committed occupancy of 92%. Tenants include Deloitte, Lander & Rogers, Norton Rose Fulbright and Urbis.

The REIT is also on track on strengthening Suntec City Office with upgrades to its main lobby, lift lobby and washrooms expected to be fully complete by 2021. These upgrades will enhance Suntec City’s competitiveness and meet tenants’ needs, according to UOB.