Office REITs Expected To Rebound In 2021
SINGAPORE – Experts said that real estate investment trusts (REITs) focusing on office properties are forecasted to recover next year thanks to good news on the development of the COVID-19 vaccine, reported The Business Times on Thursday morning (10 December, SGT).
However, OCBC noted that the huge demand and the constrained production capacity, as well as the logistical issues of applying the vaccine to enough people to achieve herd immunity are potential challenges that could extend the recovery of office REITs.
Aside from that, the company pointed out that some financial firms have reduced their office requirements in the city-state’s central business district (CBD). For instance, Keppel REIT revealed that some of its financial lessees could surrender 10 to 30 percent of their office premises by the time their lease ends in 1 or 2 years.
Nonetheless, this negative trend is being partially offset by the expansion of Chinese tech firms in Singapore. Checks conducted by OCBC showed that the office space vacated by UBS at One Raffles Quay is starting to be filled up. Notably, Suntec REIT and Keppel REIT each own a 33 percent stake in the commercial property.
However, the decline in CBD office rents has not diminished. Based on figures from CBRE, monthly rents of core Grade A and Grade B office premises there dropped by 4 percent and 3.6 percent quarter-on-quarter to S$10.70 psf and S$8.15 psf, respectively.
Property consultancy Savills also projected that rents of Grade A office space in the CBD would decrease by 6 percent in 2020 and 10 percent by 2021.
Still, office REITs are among those with the most room to recover after this year’s downturn that have caused most prices of Office REITs to fall by 15 to 20 percent compared to their levels before the pandemic, said DBS Group Research analyst Derek Tan.
OCBC shared that the distribution per unit (DPU) of office REITs have slumped by 22.7 percent in the present financial year, but it’s expected to rebound by 16.2 percent during the next fiscal year.