Retail, office spaces set to recover but residential demand will slide: Moody’s

THE significant easing of Covid 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 CBD (central business district) will continue to lend office asset owners more bargaining power over rents.

In a report on Wednesday (Jul 13), Moody’s highlighted real estate investment trusts (Reits) CapitaLand Integrated Commercial Trust : C38U 0% (CICT), Frasers Centrepoint Trust : J69U 0% (FCT) and Mapletree Commercial Trust : N2IU 0% (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 FY2022 to FY2023.

All 3 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 in 2023.

“Rated Reits’ aggregate leverage - as measured by net debt/Ebitda - will rise temporarily this year, but interest coverage and debt/deposited assets will continue to be strong,” said Moody’s research team.

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“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.”

It also sees a strong recovery in earnings growth for large property developers City Developments : C09 0%, GuocoLand : F17 0% and UOL Group : U14 0%, as their investment property and hospitality operations make up 35 to 70 per cent of total assets combined.

Moody’s projects the 3 developers’ aggregate Ebitda to rise by 18 per cent in 2022 and a further 22 per cent in 2023, primarily due to an expected earnings recovery at their investment properties and hotel operations.

Singapore’s residential property space, however, is anticipated to experience weaker contracted sales over 2022 and 2023. 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 en-bloc transactions in 2022,” said its research team.