Office REIT – UOBKH

A new record for office building

Foreign funds continue to grab office buildings. Commerz Real, a subsidiary of Germany-based Commerzbank, has bought 71 Robinson Road for a record S$743.8m or S$3,125psf. The building is owned by a partnership between Lehman Brothers and Kajima Overseas Asia. The site was acquired from Singtel for only S$163.4m in Oct 06 and is being redeveloped into a 15- storey Grade A office building with net lettable area of 238,000sf to be completed by mid-2009. Lehman Brothers and Kajima will provide Commerz Real with coupon of 4.5% during the period of construction.

This is a new record transaction price for office buildings, 7.7% higher than S$2,901psf for Hitachi Tower in Jan 08 and 20.2% higher then S$2,600psf for One George Street in Mar 08. We expect the news to create positive share price momentum for CCT, K-REIT and Suntec REIT.

Leasing momentum remains strong. According to Colliers International, rentals for Grade A prime office space in Raffles Place shot up from S$10.63psf pm in 1Q07 to S$16.64psf pm in 4Q07. Rentals for Raffles Place surged a further 5.3% qoq to S$17.52psf pm in 1Q08 as tenants chased after limited pockets of vacant space. There is strong demand from banks and financial institutions and supporting business services such as law and IT firms. Foreign financial institutions setting up operations in Singapore in 1Q08 includes Sun Hung Kai Fund Management, Man Investments, Swiss Life and MacQuarie Private Bank. Occupancy rate for Grade A office space in has further improved from 98.9% in 4Q07 to 99.1% in 1Q08.