Phillip Securities Research 2015-07-07: Soilbuild Business Space REIT - Benefit from Supply-Demand Dynamics for Business Park Space

Favourable supply-demand dynamics for Business Park space: How to get a piece of the action

  • Limited supply of Business Park space in the pipeline. 
  • Demand could possibly outstrip supply, with no new space planned in 2017. 
  • We remain upbeat on the Business Parks sub-sector within the Industrial S-REITs. 

What is the news? 

What do we think of this? 

  • BPs are a direct substitute to traditional Commercial space located in the Central Business District (CBD). They provide exactly the same facilities (such as security counter, lift lobby, pantry) at a lower cost. BP rents range between S$3.20 to S$6.00 psf/month, while CBD Commercial space rents go for above S$10 psf/month. 
  • As we have stated before, investors should expect an exodus towards BPs. On account of the lower rent, equivalent amenities and comparable accessibility, we believe that tenants who do qualify to occupy BPs would most certainly desire to re-locate from the CBD to the BPs. 
  • Favourable supply-demand dynamics. In view of the limited supply coupled with clear demand, we expect BP occupancy to continue to creep up with healthy absorption. We also expect that landlords to have some pricing power over rents, resulting in positive rental reversions. 

Investment Ideas 

  • In view of the favourable supply-demand dynamics, we remain upbeat on the Business Park sub-sector. Among the Industrial S-REITs, six of them have Business Park properties within their respective portfolios, and we list them here.

Favourable supply-demand dynamics for Business Park space 

  • Occupancy on aggregate has remained stable, typically hovering around the low 80% range. Rent has been creeping up and was 6.6% higher in 1Q 2015 than in 4Q 2012. 
  • Limited supply of 202,000 sqm and 196,000 sqm of Business Park space in 2015 and 2016, respectively.

Portfolio exposure to Business Parks within Singapore among Industrial S-REITs

  • Six Industrial S-REITs have BP properties within their respective portfolios. We list them here in descending order of BP valuation by percentage of portfolio value.

(Richard Leow, CFTe)

Source: http://www.poems.com.sg/