UBS' proposed relocation to 9 Penang to boost Suntec REIT: analyst

The development yield is said to be higher than the sub and mid 3% yields for stabilised office assets in Singapore.

Swiss investment bank UBS’ proposed relocation into 9 Penang may be net positive for Suntec REIT as it removes some uncertainty over the ability of Suntec REIT to fill 9 Penang Road and crystallises a development yield in the low 4%, according to a report by DBS Equity Research. The development yield is said to be higher than the sub and mid 3% yields for stabilised office assets in Singapore.

9 Penang Road is a joint venture (JV) development between Suntec REIT (30%), and investment holdings firms SingHaiyi Group (35%) and Haiyi Holdings (35%).

UBS is considering relocating its operations at One Raffles Quay (ORQ) and Suntec City into 9 Penang with the bulk of the leasing terms already settled but still subject to final approval from UBS’ headquarters (HQ) in Zurich, a report revealed. The move is said to be part of the bank’s wish to operate within its own campus-style facility, which may include a canteen with chef’s cooking for the UBS staff, rather than solely due to a desire to achieve rental savings.

Should UBS indeed take up the whole building, there is some upside to DBS’ distribution per unit (DPU) estimates, as it had originally penciled in an initial 85% occupancy with $9.50 psf per month rents, according to DBS analysts Mervin Song and Derek Tan.

“In addition, whilst Suntec REIT will lose UBS as a tenant at Suntec City Tower 5, which it wholly owns, and at ORQ, which it owns a one-third stake together with KREIT and HongKong Land, given the tight office market and potential 1-2 year lead time, Suntec REIT should be able to backfill the space vacated by UBS,” they noted.

If UBS were to relocate, it would take up the entire space at 9 Penang Road which comprises 352,000 sqft of office net leasable area (NLA) and 15,000 sqft of retail space, the analysts revealed. UBS currently occupies an estimated 230,000 sqft at ORQ and approximately 90,000 sqft at Suntec Office or total of 320,000 sqft.

9 Penang Road is expected to be completed at end-2019. The building comprises eight floors of office space in two wings from level 3 to 10, with the first floor designated for retail space. The car park is located in the basement and on the second floor. 

Photo from SingHaiyi Group.