Singapore Office Market To Shine For The Rest Of 2022

SINGAPORE – DBS Group Research stated that real estate investment trusts (REITs), particularly those with office properties and hotel assets, are viewed as safe havens when the yield curve flattens amidst a rising interest rate environment, reported The Edge on Wednesday morning (25 May, SGT).

Despite market volatility, “the stars are aligned” for hospitality and office sectors, said DBS Group Research analysts Dale Lai and Rachel Tan.

“While Singapore-listed REITs or S-REITs are not spared by the rising interest rate environment, they can still outperform in instances when the yield curve flattens, which we expect to see in H2 2022 to 2023.”

“As such, despite the reopening plays having already done well year-to-date at 10 percent, we believe that the hospitality and office sectors will continue to shine on the back of improving fundamentals,” wrote the analysts in a recent report.

For office plays, the duo’s top picks are Keppel REIT and CapitaLand Integrated Commercial Trust (CICT). For hospitality plays, their top picks are CDL Hospitality Trusts (CDLHT) and Ascott Residence Trust (ART).

“For the rest of the year 2022, we believe the office and hospitality sectors will continue to shine, given expected tailwinds in the respective sectors. The office sector continues to see positive catalysts in both demand and supply.”

In particular, they noted that Singapore’s office market has witnessed robust demand from both tenant expansions and new demand from regional relocations to the city-state, which has offset a potential downsizing arising from the adoption of the hybrid work. The analysts also added that a lack of quality new office stock in Singapore’s core central business district (CBD) will drive rents upward in light of the strong demand, while vacancy will likely trend below 4 percent.

In terms of future office purchases and hotel acquisitions, they are likely to be selective and targeted, noted the DBS Group analysts.

“With cap rate spreads tightening as interest rates rise, we expect inorganic growth to turn challenging and acquisitions to be more selective and targeted moving forward,” they added.