Singapore is witnessing a bumper supply of office spaces as new buildings come online, but Keppel REIT is prepared to weather the storm by accelerating its forward renewal efforts.
Ng Hsueh Ling, CEO of Keppel REIT’s manager, made the remarks at a media roundtable hosted by Macquarie Securities in Singapore on 31 August.
2016 and 2017 are going to be challenging years for Keppel REIT said Ng, pointing to new developments in Singapore’s CBD area, such as Marina One, that will significantly add on to the supply of new office spaces in the republic amid a slowing economy.
“But there is nothing we can do to control the supply of new buildings in Singapore. So we turned towards what we can do for ourselves as a REIT, to ride over the current situation”, said Ng.
“We started work about three years ago to do forward renewals and approach our tenants to see whether they’re willing to extend their leases with us. I would say that so far, we're pretty successful due to the hard work of our team”.
“At the beginning of 2016 more than half a million square feet of space could go to another building. But as of 30 June 2016, less than 100,000 square feet is left due to our efforts at forward renewals", said Ng.
According to her, this strategy has allowed the REIT to be more predictable in its distributable income. “We will see resilience and stable cash flows in the next few years even though there is a huge supply of office spaces coming downstream”, she added.
However there seems to be light at the end of the tunnel beyond 2018 for Singapore office REITs. Ng pointed to the period between 2019 and 2021 as years where there will be no new supply of premium office spaces in Singapore.
“There has never been such a time in Singapore’s history where there are three consecutive years of zero supply of office spaces. I think this is the reason why the government has started the sale of the white site beside Lau Pa Sat”, said Ng, in reference to the prime plot of land at Central Boulevard which is being put up for sale by tender in late August 2016.
“But even if they start building the property tomorrow, that will come online only around the end 2021 or early 2022”, said Ng, who added that Keppel REIT’s properties remain in good stead to retain its tenants in the years ahead.
Keppel REIT currently has a portfolio of four office properties in Singapore’s CBD, while another four properties are located across major cities in Australia.
Units of Keppel REIT finished the trading day about 0.5% higher from its previous close on the Singapore Exchange to end at SGD1.07.