PROSPECTS for real estate investment trusts (Reits) in Singapore remain challenging as there will be a greater supply of office, industrial and retail space coming onstream, said Moody’s Investors Service yesterday.
The rating agency kept its outlook for the sector over the next 12 months negative. This places it at the bearish end of the scale compared with two other research houses – DMG & Partners has a ‘neutral’ rating on Reits and OCBC Investment Research recently upped its call to ‘overweight’.
Moody’s was particularly concerned about the influx of office, industrial and downtown retail space at a time of unexceptional economic growth. Its sovereign unit estimates that Singapore’s GDP will expand by around 5 per cent this year.
‘This is below the average GDP growth of 8 per cent from 2004 to 2007 and will not be adequate to absorb the strong increase in supply of commercial properties that was planned before 2008, based upon the then much higher economic growth rate,’ it said in a report.
According to Moody’s, around 6.6 million square foot of new office space will enter the market between this year and 2012. While landlords have managed to secure tenants for more than 30 per cent of the new supply, there will still be pressure on occupancy and rents over the medium term, it said.
When it came to the retail sector, Moody’s was more worried about rents at Orchard Road. This is because about 3.7 million sq ft of new space will be ready in the next two years, some of it at the two integrated resorts.
Moody’s acknowledged that most Reits have been rather resilient and have turned in stable results. But ‘pressure on earnings may increase in 2011 when new supply comes on stream across all property segments if demand is not increased’, it said.
Not all market watchers shared Moody’s view completely. DMG analyst Jonathan Ng agreed that office Reits would face a tougher time as rents continue to slip, but he was neutral about prospects for retail and industrial Reits, and positive on hospitality Reits’ performance.
Mr Ng was not particularly concerned about new retail space coming onstream as pre-commitment rates have been strong.
In a March 4 report, OCBC Investment Research upgraded its call on the Reits sector. Of the eight Reits it covers, five most recently turned in results meeting the house’s forecasts while three did better than expected.
Source: Business Times, 19 Mar 2010