Office/ Retail Reits

Office/ Retail Reits: URA 3Q15 data showed acceleration in the fall of office and retail rent rates on a sequential basis, which prompted market observers to project a further softening into 2016.

Office rents in central region slipped 2.9% q/q, following the 2.6% drop in 2Q15. Likewise, capital values dipped 0.1% q/q (2Q15: +0.3%).

Meanwhile, retail rents in the central region tumbled 2% q/q (2Q15: -0.5%), marking its third consecutive quarter of decline. Market values for retail space continue its fall by 0.3%, following the 0.5% drop the previous quarter.

The headwinds from uncertainties in the business climate caused by the weak global economy are expected to remain, as businesses continue to trim operating costs, amid rising labour expenses.

Notably, downsizing of space requirements by financial firms, cost cutting by professional services firms, as well as the expressions of intention by retailers to terminate their leases do not suggest a near term turnaround in sentiment

Maybank-KE is most negative on the retail segment due to a weak demand and strong supply environment, followed by a Neutral stance on the office space from the deteriorating economy.

Within the two segments, the house least favours retailers Frasers Centrepoint Trust (Sell, TP: $1.61) and Mapletree Commercial Trust (Sell, TP: $1.10), followed by office REITs Suntec (Sell, TP: $1.33) and Keppel REIT (Hold, TP: $0.88).