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SINGAPORE : Property consultants are not expecting prices of commercial and industrial properties to rise drastically anytime soon.

This is despite growing efforts by REIT managers here to boost their portfolio.

They suggest that the property trusts turn to the region to expand their holdings.

Nicholas Mak, Director, Consultancy and Research, Knight Frank, said: "Building owners can ask for the moon but whether REITs managers will pay that kind of price is another question. Yes, I agree there will be more competition and it will become increasingly challenging for the REITs managers to secure buildings at very high yield. At the same time they must also be able to give sufficient returns to the unit holders."

But while prices may not jump, they are expected to edge upwards because the number of good class buildings available that could be injected into REITs will diminish over time.

And with office rentals forecast to rise, building owners could be expected to ask for higher prices.

Donald Han, MD, Cushman and Wakefield, said: "I think you will see an increase in price, it may not necessary be an over-inflated kind of scenario. It has to be in line with market valuations itself. Already market valuation is pegging onto a higher increase of price right now compared to the last 12 months. So yes there will be a gradual appreciation but it should be in line with market valuation, in line with market yields and rental trends."

Despite the potential rise in prices, market watchers are not forecasting a rise in yields just yet because interest rates are still relatively low.

Mr Han said: "If you look into the generic market on a worldwide trend itself there has been a compression of yields even in places like in US for instance. Traditional prime yields were pegged at about 7 to 8 percent, now it has gone down to about 6 percent. So this phenomenon on compression of yield is not just unique to Singapore but also on a world wide basis."

"The main reason for this has been the world wide market condition is experiencing a very low historical low interest rate. So as a result low yields are excepted as long there is an arbitrage of about 2 percent to 3 percent from the cost of borrowing."

Property consultants suggest that for the long term, REITs in Singapore should consider changing their mandates and turning to the region for potential acquisitions. - CNA /ch