DBS Group Research analysts Rachel Tan and Derek Tan remain positive on the Singapore office REITs sector as they see that the reopening of the country’s economy will continue to be a key theme in 2022. The Singapore government, which is looking at having more employees return to the office in 2022, is also another plus for the sector.
The Singapore office REITs sector, which is currently trading at 0.9 times price-to-net asset value (P/NAV) on the whole, is deemed “attractive” to the analysts.
Despite the work from home (WFH) default for the most of 2021, Singapore office rents registered a stronger recovery. This is seen in vacancy spaces at key buildings – namely Asia Square Tower and CapitaSpring – close to being fully committed, note the analysts.
In addition, further delays in the completion of large new incoming supply such as Guoco Midtown and Central Boulevard Tower have provided a longer runway for office rents to recover, they add.
Guoco Midtown is slated to be completed in FY2023, while Central Boulevard Tower is pegged to be completed in FY2024.
“The increasing ‘flight to quality’ trend shows that good quality prime office buildings are still desired and will likely lead the recovery come 2022,” write the analysts from DBS.
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As 2022 marks the third year since the Covid-19 pandemic began, the analysts foresee that the adoption of hybrid working arrangements could increase, as companies increasingly adopt a more core, as well as flexible approach. This approach could lend more agility during times of uncertainty, say the analysts.
“With limited new supply completions, based on leases coming due for the overall sector in 2022–2024, we estimate that up to 20% of potential downsizing from expiring leases in FY2022-FY2024 of up to 800,000 sq ft of shadow space is still manageable, in line with historical demand trends,” they write in a Dec 13 report.
Mixed commercial S-REITs preferred
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Within the sector, the analysts have expressed their preference for mixed commercial Singapore REITs (S-REITs) as they offer a stronger growth trajectory of 8% to 20% in FY2022.
Mixed commercial S-REITs are likely to ride on the retail recovery following the low base in FY2021. They will also be a beneficiary from the return-to-office exodus.
Of these S-REITs, Suntec REIT, CapitaLand Integrated Commercial Trust (CICT) and Mapletree Commercial Trust (MCT), are the analysts’ top picks as they offer the strongest distribution per unit (DPU) growth in the FY2022 compared to their peers.
Photo: Bloomberg
