S'pore retail, office properties set to recover but residential demand will drop: Moody's

Commercial property owners will stand to benefit from a boost in earnings on the back of strong pent-up demand. ST PHOTO: LIM YAOHUI

SINGAPORE (THE BUSINESS TIMES) - The significant easing of Covid-19 restrictions in Singapore means commercial property owners will stand to benefit from a boost in earnings on the back of strong pent-up demand, according to Moody's Investors Service.

The credit rating company also believes improving demand and limited new supply of quality office space in Singapore's Central Business District (CBD) will continue to lend office landlords more bargaining power over rents.

In a report on Wednesday (July 13), Moody's highlighted real estate investment trusts (Reits) CapitaLand Integrated Commercial Trust (CICT), Frasers Centrepoint Trust (FCT) and Mapletree Commercial Trust (MCT) as key beneficiaries from the recovery in both retail and office demand.

The company expects earnings of CICT and MCT to increase substantially following recent merger and acquisition activities, while FCT's earnings are expected to remain stable in financial year 2022 to financial year 2023.

All three Reits are projected to see an aggregate Ebitda (earnings before interest, taxes, depreciation, and amortisation) increase of 22 per cent this year, and a further 14 per cent next year.

"Higher retail sales and footfall following the easing of coronavirus measures will reduce both the need for rent rebates and the likelihood of rent deferrals, which will support earnings recovery for retail property owners."

Moody's also sees a strong recovery in earnings growth for large property developers City Developments, GuocoLand and UOL Group, as their investment property and hospitality operations make up 35 per cent to 70 per cent of total assets combined.

Moody's projects the three developers' aggregate Ebitda to rise by 18 per cent this year and a further 22 per cent next year, primarily due to an expected earnings recovery at their investment properties and hotel operations.

Singapore's residential property market, however, is anticipated to experience weaker contracted sales over this year and next year. The research team said this is given lower sales volume and the likelihood of subdued launches following a low volume of land transactions in recent years.

Demand for private residential properties will also be dampened by rising mortgage rates, cooling measures and tax hikes, added Moody's.

"Given the more bearish market environment and weaker supply pipeline, we expect contracted sales of large developers will decline in 2022 from their strong performance in 2021. Contracted sales of developers could increase in 2023 if they replenish their land bank by participating in government land sales tenders, or complete collective sale transactions in 2022," said its research team.

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