Tencent, on September 16, announced that it has chosen Singapore as its hub in Asia following its bans in India and the US.
See: Tencent picks Singapore as Asia hub after bans in India and US
The Chinese tech giant joins rivals Alibaba Group Holding and ByteDance in setting up headquarters in the city-state.
Following the news, DBS analysts Rachel Tan and Derek Tan have identified Grade A prime CBD office landlords such as CapitaLand Commercial Trust (CCT) and Keppel REIT (KREIT), or business parks as companies who will stand to benefit the most from the move.
“While the details are yet to be known, potential beneficiaries among the listed office REITs include CCT (with its upcoming completion of CapitaSpring) and KREIT (with its portfolio of quality Grade A office assets) These REITs have vacancies to be filled given planned upcoming vacancies,” they write in a report dated September 16.
“While business parks may be an option, we understand that there are minimal vacancies within the Alexandra precinct and One-North precinct which may attract these tech firms. While science park properties may be an option, we believe that a redevelopment will be needed in order to attract them to relocate there,” they add.
The news has also prompted the analysts to urge investors to take a second look at office fundamentals, as they may be stronger than they think.
“We believe the entry of new investments bodes well not only to spur the Singapore economy and job creation but also implies new demand for office space in Singapore,” they note.
Calling the recent news “significant”, both analysts say investors should watch out for this as an “inflection point”.
While the return of existing office space is likely to be more gradual, the analysts say demand from these tech giants is immediate.
“With news of this inflow of new demand (employment, new office space from Chinese tech firms), it will be an emerging datapoint to track, especially in the market of low supply (2020-2022),” they say.
They add that the office REIT sector remains “attractive” at 0.8x price to net asset value (P/NAV).
To that end, the analysts’ top picks for office sectors are KREIT and Mapletree Commercial Trust (MCT). They have given both trusts “buy” recommendations with target prices of $1.35 and $2.25 respectively.
As at 3pm, units in KREIT and MCT are trading 1.8% up at $1.13 and 3.5% up at $2.07 respectively.
