Perennial Real Estate Holdings Limited - Annual Report 2015 - page 50

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PERENNIAL REAL ESTATE HOLDINGS LIMITED Annual Report 2015
BUSINESS REVIEW
can house about eight reasonably-sized office units.
Subject to the receipt of the necessary approvals from
the relevant authorities, the enhancement works and
strata sale are expected to commence in the second
quarter of 2016.
In January 2016, as part of Perennial’s on-going
evaluation of its strategic investments, it divested its
entire 1.46% interest in 112 Katong, together with
its 23% interest in the asset manager of 112 Katong.
In early March 2016, it acquired an additional effective
interest of about 3.68% in Chinatown Point1, thereby
increasing its effective interest in the property from 1.47%
to 5.15%.
Strategic Priorities in 2016
This year, Perennial will focus on strengthening the
recurrent income streams from operating properties by
reviewing the trade mix and intensifying the leasing efforts
at CHIJMES and Capitol Singapore. In addition, Perennial
will proceed with the planned asset enhancement
initiatives, as well as the strata sale of the office spaces
and medical suites at TripleOne Somerset and AXA Tower
to deliver an additional stream of income.
Singapore remains as a key market for Perennial and if
opportunities arise, particularly in new investments that
can add an immediate stream of recurring income, it will
proactively explore to further strengthen its presence in
its home ground.
Market Review and Outlook
After holding firm in 2014, retail rents registered a decline
in 2015 due to subdued occupier demand as a result of
weaker economic conditions and caution in consumer
spending. Island-wide, average rents declined by 4.1%2 in
2015 as compared to 2014. Despite the poor sentiment
among retailers, the number of new international brands
entering the Singapore retail market remained healthy in
2015, with landlords continuing to bring in new brands
and concepts to retain shoppers’ interests, and some well-
performing tenants proceeding with their expansion plans.
For 2016, retail rent is expected to slip lower on the back of
a further weakening in the general operating environment.
However, the significantly lower supply of 2.4 million2 sq ft
GFA of new retail space coming on stream as compared
to 2015 might offer the market a respite. Retail malls with
good connectivity to mass rapid transit (“MRT”) stations
and enjoy high shopper traffic will continue to generate
interest from retailers. In particular, the downside risk of
retail rent within office buildings in the Orchard/Somerset
and Shenton Way/Tanjong Pagar areas is expected to
be contained as the non-discretionary spending of the
affluent working population in the area will continue
to support demand for retail space, particularly from
F&B operators.
Following a strong rental market in 2014, CBD core office
rents corrected across all sub-markets, falling 7.1% to
S$10.403 per sq ft per month on a year-on-year (“YOY”)
basis, due to lacklustre demand as a result of space
consolidation in the financial industry and fewer new
business formation on weakening economic conditions.
For 2016, office rent in the CBD and Shenton Way/Tanjong
Pagar sub-markets is expected to weaken further as
leasing competition intensifies with a relatively large supply
of new CBD office space due for completion this year.
In the medium-term, the asset enhancement of older office
buildings in the Shenton Way/Tanjong Pagar sub-markets,
combined with new office developments, will improve the
quality of office space, and expand the pool of potential
tenants and owner-occupiers for spaces in this sub-market.
Despite strata office sales activity having slowed
down, with 228 strata office transactions caveated for
the whole of 20154, prices continued to hold steady,
having only moderated slightly in the CBD area due to
a concentration issue. Investment interest in strata office
would further benefit from the limited supply of strata office
development in the Orchard/Somerset and Shenton Way/
Tanjong Pagar, as well as the relatively lower transaction
cost of strata office investment which is not subject to the
Additional Buyer’s Stamp Duty. There is continued keen
interest from local and overseas buyers, particularly from
China, for strata office as investment properties, and a
strong demand from end-users and office occupiers.
For the full year 2015, Singapore’s Gross Domestic
Product (“GDP”) grew 2.1%5. The growth outlook for
Singapore is expected to be modest in 2016, with GDP
growing by 1% to 3%5.
1 Comprising the retail mall and four strata office units.
2 Source: Urban Redevelopment Authority, January 2016.
3 Source: CBRE 4Q Singapore MarketView 2015 Report.
4 Source: REALIS.
5 Source: Ministry of Trade and Industry Singapore, January 2016.