Phillip Securities Research 2015-07-14 (REIT): Favourable supply-demand dynamics for Business Park space.

Tenants gravitating towards Business Parks 

  • Tenants vacating CBD space and moving to Business Park spaces. 
  • Pessimism on economic outlook and lower rents are considerations by tenants. 
  • We remain upbeat on the Business Parks sub-sector within the Industrial S-REITs. 

What is the news? 

  • Last week, we had a report on the Business Park sub-sector. The report focused on the supply-side of the sub-sector. This week, we have an update from the demand-side of the sub-sector. 
  • It was reported by The Straits Times last Friday, 10 July that new Central Business District (CBD) leases have fallen and tenants are gravitating towards Business Park (BP) space, as indicated by research from a real estate consultancy. (Source: 

What do we think of this? 

 Favourable supply-side dynamics. 

  • In our previous report from last week, we saw that there is an impending shortage of BP space, with no new space planned from 2017 onwards. 

 Favourable demand-side dynamics. 

  • This week, we see that tenants are choosing to vacate CBD space in favour of BP space. 

 Secular trend of decentralising business activities outside of the CBD. 

  • We have been advocating to investors to add exposure to the BP sub-sector since our Initiation report (dated: 16 March 2015) on Soilbuild Business Space REIT. 
  • We see BPs as a disruptor to traditional commercial space in the CBD. 

 Improving occupancy and uptrend in Rental Index. 

  • 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. 

Richard Leow, CFTe