1Q17 office space vacancy rates peaked at 11.6%, highest in five years. Office rental rates continue to decline and Grade A office rents stabilising QoQ, indicating signs of stabilisation in office rental rates.
Office space supply is expected to peak in 2017 and taper off in the next few years. CBRE Research believes that sentiment has swung from pessimism to optimism as investors forecast a period of relatively modest supply over the next few years.
SGX lists six Office REITs (GICS®) with a combined market capitalisation of S$12.8 billion. These 6 trusts have generated a market cap weighted average total return of 16.9% in the YTD and have an average dividend yield of 5.7%.
Real Estate Sector Sub-Segment: Office Property Market
Vacancy rates highest since 1Q12 and rental rates continue to fall
Recent data by the Urban Redevelopment Authority (URA) shows office space vacancy rates in 1Q17 peaking at 11.6%, the highest level in the last five years (1Q12 vacancy rates at 11.7%). Office rents have also been on a steady decline as the Singapore Office Rental Index continues to fall by 3.4% to 157.3 points in 1Q17 (9 quarters of continuous rental decline).
On a positive note, CBRE Research indicates signs of stabilisation in office rental rates as average Grade A office rents stabilise at $8.95 per sq ft and were flat QoQ. DBS Vickers Securities believes that the office property market is approaching the cyclical lows as investors and office landlords have turned more positive on office outlook.
Source: URA (data up to end 1Q2017)
Source: URA (data up to end 1Q2017)
Office space supply to peak in 2017 and sentiments turn positive
URA data shows that office space supply is expected to peak in 2017 (largely due to Marina One and UIC Building for example) and suggests supply is tapering off in the next few years. The total office space supply for 1Q17 at 5.1% higher from previous quarter with about 826,000 sq m gross floor area of office space. DBS Vickers Securities expects supply to ease in the next few years after 2017 as the new wave comes around 2021 when Golden Shoe (c.800,000 sq ft) and Central Boulevard (c. 1.1million sq ft) are completed.
Singapore office supply to taper off in next 2 years
Source: URA (data up to end 1Q2017)
Primary transactions picking up year-to-date
According to CBRE Research, office market deals are picking up with S$3.39 billion worth of office deals transacted in the first four months of 2017. Recent deals include the sale of Asia Square Tower 1 to Qatar Investment Authority for S$3.4 billion and potentially Asia Square Tower 2 by BlackRock and CapitaLand. CBRE Research also believes that sentiment has swung from pessimism to optimism as investors forecast a period of relatively modest supply over the next few years.
For more, please refer to the SGX Real Estate sector presentation.
SGX’s Cluster of Office REITs
SGX lists six Office REITs (GICS®) with a combined market capitalisation of S$12.8 billion. These 6 trusts have generated a market cap weighted average total return of 16.9% in the year-to-date and have an average dividend yield of 5.7%. The five best performers in the year-to-date are CapitaLand Commercial Trust (+20.2%), Frasers Commercial Trust (+17.1%), Keppel REIT (+16.0%), Manulife US REIT (+13.7%) and IREIT Global (+12.5%).
The table below details the Office REITs (GICS®) sorted by market capitalisation:
| Name | SGX Code |
Market Cap S$m |
Price S$ |
Total Return YTD % |
Total Return 1 Yr % |
P/B | P/B 5 Yr Avg |
Gearing % |
Dvd Ind Yld % |
|---|---|---|---|---|---|---|---|---|---|
| CapitaLand Commercial Trust | C61U | 5,280 | 1.730 | 20.2 | 16.6 | 0.9 | 0.9 | 28.5 | 5.3 |
| Keppel REIT | K71U | 3,839 | 1.150 | 16.0 | 12.8 | 0.8 | 0.8 | 32.5 | 2.7 |
| Frasers Commercial Trust | ND8U | 1,139 | 1.420 | 17.1 | 15.0 | 0.9 | 0.8 | 35.8 | 7.0 |
| OUE Commercial REIT | TS0U | 1,108 | 0.720 | 8.9 | 15.8 | 0.8 | 0.8 | 34.1 | 8.9 |
| Manulife US REIT | BTOU | 917 | 1.260 | 13.7 | 17.2 | 1.1 | N/A | 33.6 | 2.3 |
| IREIT Global | UD1U | 480 | 0.770 | 12.4 | 12.5 | 1.2 | 1.1 | 41.9 | 8.0 |
| Average | 14.7 | 15.0 | 1.0 | 0.9 | 34.4 | 5.7 | |||
| Market Cap Weighted Average | 16.9 | 15.1 | 0.9 | 0.8 | 31.7 | ||||
Source: SGX, Bloomberg & SGX StockFacts (data as of 19 July 2017)
Of the six trusts, Keppel REIT and CapitaLand Commercial Trust have reported recent earnings this week. Some key highlights include:
Keppel REIT
- Distribution per Unit (DPU) of 1.42 cents declared for 2Q 2017, bringing 1H 2017 DPU to 2.87 cents and an annualised distribution yield of 5.0%.
- Distribution income (DI) for 1H 2017 was at S$95.5 million, lower YoY mainly due to absence of income from 77 King Street in Sydney which was divested in Jan 2016, lower one-off income in 1H 2017, lower income contribution from Bugis Junction Towers and the absence of other gains distribution.
- Portfolio committed occupancy rate of 99.8% as at end June 2017. Tenant retention rate was at 85% for 1H2017. Click here to read more.
CapitaLand Commercial Trust
- Distribution per Unit (DPU) of 2.27 cents declared for 2Q 2017, bringing 1H 2017 DPU to 4.59 cents, 4.6% higher YoY and an annualised distribution yield of 5.5%.
- Distribution income (DI) for 2Q 2017 was at S$69.5 million, 6.7% higher YoY. Positive results are due to CapitaGreen’s better performance and higher contribution to overall gross revenue and net property income.
- Portfolio committed occupancy rate of 97.6% as at end Jun 2017 vs. the core CBD market occupancy rate of 94.1%. Click here to read more.
Previous Market Updates on the Real Estate Sector
- 6 July 2017: SGX Real Estate Index Returned 19.5% YTD on Positive Indicators
- 13 July 2017: Singapore Private Property Market Shows Signs of Stabilising
- 14 July 2017: Green Shoots Emerge Despite Challenging Industrial Property Market
