Suntec REIT Office Portfolio To Be Hit By Tech Sector Slowdown
SINGAPORE – Vijay Natarajan, an analyst at RHB Group Research, expects Suntec REIT’s office assets to be affected by the tech sector’s slowdown, which could lead to an easing of office rental growth and a marginal increase in office vacancy rates of its assets, reported The Edge on Tuesday noon (10 January, SGT).
“This, coupled with the sharp interest cost impact from a spike in rates, should weigh on Suntec REIT’s share price,” he noted.
Consequently, Natarajan has downgraded his call for the trust from “buy” to “neutral”. He also slashed his target price for the real estate investment trust (REIT) from S$1.70 to S$1.47.
He revealed that the technology, media, and telecommunications (TMT) industry generated 38 percent of the total office rent in Suntec City Office Towers in FY2021, making the sector the largest occupant group there. In addition, the analyst highlighted that the TMT industry has been an important source of new rental demand for the office development in the past years.
Moreover, Suntec City Office Towers is the biggest asset held by the REIT as it contributes about 30 percent of its overall income. As of Q3 FY2023, the office development has a positive rental reversion of 3.3 percent and a health occupancy level of 99.6 percent.
“For FY2023, 27 percent of leases are due for renewal and we expect committed occupancy could fall to 98 percent levels with flattish rent reversions,” forecasted Natarajan.
On the other hand, Suntec REIT’s jointly-owned office properties – One Raffles Quay and Marina Bay Financial Centre (MBFC) – are likely to be less impacted by the slowdown in the tech sector as these assets are mainly leased to financial and insurance companies.
Natarajan added that one bright spot for the trust is the long leases of its overseas real estate portfolio. The long lease profile of Suntec REIT’s UK portfolio would mitigate the impact of the country’s dismal economic outlook, and there’s no substantial office lease expiries and or breaks until 2025.
Similarly, the trust has secured lease commitments for over half of the 2023 expiring leases for its Australian properties.