Singapore Office REITs

Analysts Bullish On Singapore Office REITs

SINGAPORE – Rachel Tan and Derek Tan, analysts at DBS Group Research, continue to be upbeat on Singapore office REITs as they believe that the reopening of the city-state’s economy will remain a major theme next year, reported The Edge on Thursday afternoon (16 December, SGT).

Another positive factor for the industry is that the Singapore government will allow more workers to return to their office by 2022. As a whole, Singapore office REITs are currently trading at 0.9 times price-to-net asset value (P/NAV), which is considered “attractive,” said the market watchers.

Moreover, rents of office space here saw a more robust recovery, even though work from home (WFH) was the default work arrangement for most of 2021. In fact, vacancy rates in key office buildings, specifically CapitaSpring and Asia Square Tower, are nearly fully occupied, they noted.

Office rents could also get more time to rebound due to further delays in the completion of major incoming office stock like Guoco Midtown and Central Boulevard Tower, which are expected to be ready by FY2023 and FY2024 respectively.

“The increasing ‘flight to quality’ trend shows that good quality prime office buildings are still desired and will likely lead the recovery come 2022,” wrote the analysts in a research report.

“With limited new supply completions, based on leases coming due for the overall sector in 2022 to 2024, we estimate that up to 20 percent of potential downsizing from expiring leases of up to 800,000 sq ft of shadow space is still manageable, in line with historical demand trends.”

However, the analysts forecasted that the adoption of hybrid working arrangements could grow as businesses increasingly adopt a more core, as well as flexible approach. This strategy could provide more agility in times of uncertainty, given that 2022 marks the 3rd year since the start of the COVID-19 pandemic, they explained.

The analysts favour REITs that own office space located in mixed-use developments, as the DPU of these trusts are expected to grow by 8 percent to 20 percent next year. Apart from being able to take advantage of a retail recovery, such REITs will also ride on the return-to-office.

In particular, the market watchers’ top picks are Suntec REIT, Mapletree Commercial Trust (MCT), and CapitaLand Integrated Commercial Trust (CICT), which they deem to offer the highest DPU growth potential for FY2022 compared to other Singapore-listed REITs.

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