Strong Office Rental Reversion

Keppel REIT Sees Strong Office Rental Reversion In Q4

SINGAPORE – Keppel REIT expects its office rental reversions for leases expiring this year would be in the “mid to higher single digits” following a solid figure for the last quarter of 2022, according to a report from The Business Times that was updated on Friday evening (27 January, SGT).

In Q4 2022, the real estate investment trust (REIT) recorded a robust office rental reversion of 23.4 percent for its office properties located within the central business district (CBD) of Singapore. Consequently, its portfolio’s rental reversions for the entirety of 2022 averaged at 10 percent, revealed the trust’s Asset Management Head Rodney Yeo.

For 2023, Keppel REIT’s manager foresees that the 1st half of the year would probably fare better than the 2nd half.

“In the first half, we are still trying to make hay while the sun shines, (then the) supply coming online at the end of 2023 or early 2024 from IOI Central Boulevard Towers would probably create a pause in the recent market rent increase,” Yeo explained.

As for the strong rental reversion in the last three months of 2022, it was not driven by any particular office tenant or property, but it was a CBD-wide trend witnessed through rapidly rising office rents that hit 30 to 40 percent in some cases in the course of the year.

But while Keppel REIT is targeting to absorb demand from companies relocating from Greater China, Yeo noted that such demand is more of a trickle rather than “a flood at the moment”.

Meanwhile, the CEO of the trust’s manager Koh Wee Lih disclosed that the slowdown in the tech sector is greatly impacting Singapore’s business park segment, which is not part of the REIT’s portfolio. However, the resulting shadow space would affect the broader office market.

Notably, Keppel REIT’s S$9.2 billion portfolio is primarily situated in Singapore. Its office assets there include One Raffles Quay and the Marina Bay Financial Centre (MBFC). It also holds commercial properties in Japan, South Korea, and Australia.

In its latest financial result, the trust announced that its net property income (NPI) for FY2022 inched up by 2 percent year-on-year to S$158.9 million. The healthy performance was due to a full year of contribution from Singapore’s Keppel Bay Tower, which it purchased in May 2021, as well as higher NPI generated by the Ocean Financial Centre in Singapore and Sydney’s Pinnacle Office Park.

But this was offset by the sale of 275 George Street in Brisbane in July 2021, and lower NPI from Melbourne’s Victoria Police Centre and T Tower in Seoul because of weaker exchange rates.

As of the end of December 2022, Keppel REIT’s committed portfolio occupancy rate stood at 96.3 percent, while the weighted average signing rent for its Singapore office assets rose to S$11.54 psf per month for FY2022 compared to S$11.47 psf during the first nine months of the year.

Furthermore, tenant retention for the year under review reached 78 percent. Its weighted average lease expiry for its portfolio also stood at six years and 10.5 years for its 10 biggest occupants.

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