Analysts worry over 2.79m sq ft glut of CBD supply

A 10-20% correction is expected in 2016.

OCBC recently lowered its FY16 forecast for Grade A rentals and now expect a 0% to -5% dip in 2015 (unchanged) and a -10% to -20% correction in 2016 (versus -5% to -10% previously).

"Overall office demand from financial institutions and commodities firms have weakened and 2Q15 island-wide net absorption of 296k sqft came in significantly below the 5-year average of 459k sqft."

Here's more from OCBC:

In particular, we are concerned about the 2.79m sqft glut of CBD supply over 2H15 to 2016 and the growing trend of companies relocating outside the CBD to regional centres and business parks, which has yielded up considerable secondary supply.

As at end Jun 15, CapitaGreen was 80.4% committed; despite weaker than anticipated conditions, we still see management achieving an occupancy rate above 90% by the end of this year given their strong execution ability, but operating in a challenging market likely points to below-forecast rentals over the current reversion cycle.

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