[ad_1]
Thursday, December 10, 2020 – 11:46 am
DBS Group Research advised investors on Thursday to “keep the winners from their office” as Singapore-listed real estate investment trusts (S-Reits) appear poised for a cyclical recovery.
In addition, the excess of growing flexible working trends could be mitigated by limited new office supply and a rebound in Singapore’s gross domestic product (GDP), analysts Rachel Tan and Derek Tan said in a report.
Office S-Reits remain attractive, trading at the historical industry average price of 0.9 times net asset value (P / NAV), analysts wrote. “With a vaccine now on the horizon, we believe a return to normal would be the catalyst to drive office S-Reits unit prices toward 1.1 times P / NAV, or one standard deviation above their historical average.”
As the economy is recovering from the Covid-19 pandemic, and given the close correlation between GDP, demand for offices, and the stock performance of these S-Reits, DBS considers that “office laggards they will become leaders in 2021. “
Overall, S-Reits unit prices have recovered about 40 percent from their March lows, but S-Reits office price performance, with only a 30 percent recovery, is still ahead. behind its peers in other asset classes like industrials and hospitality. Therefore, Office S-Reits offers investors the opportunity to take advantage of the recovery until next year, DBS said.
Meanwhile, the demand for office space is expected to emerge with a new face after the pandemic. Companies are increasingly looking to adopt more flexible work arrangements, with the aim of crystallizing short-term occupancy savings, the research team noted.
That said, DBS believes that the level of adoption of hybrid work models will vary across industries and work environments, as there is no one-size-fits-all.
Financial institutions and insurance companies, which take up about 40 percent of the total space in the central business district (CBD), can return most of the office space compared to other sectors, analysts said.
Possible downsizing in sectors hardest hit by the Covid-19 crisis will also depress net demand for CBD office space. These companies, primarily in food and beverage, retail and energy, are tenants of about 20 percent of CBD offices, Tan and Tan added.
Based on DBS’s base case scenario analysis, there could be around 1.1 million square feet (square feet) of negative net absorption, which could translate to shaded or vacant spaces in the coming years. As a result, CBD office vacancy rates can rise to about 14 percent, from the current 12 percent.
What may counter the headwinds generated by the shift to hybrid work is potentially larger-than-expected economic and employment expansion, DBS said.
Additionally, the new limited supply of office space could prevent a sharp drop in rental rates. Only about 167,000 square feet of net supply will hit the market in 2020-2022.
Companies will also need to comply with safe distancing requirements in the workplace. This can expand the amount of space required per employee by about 25 percent at 100 square feet, DBS estimated.
In addition, companies, especially those in the technology sector, that have benefited from the pandemic may experience continued growth and thus an increased appetite for office space.
DBS’s analysis indicated that these factors, taken together, will likely result in net demand breaking even.
The research team noted that employers are still reviewing their plans and could make firmer decisions in the coming years as their leases expire.
While the return of space for years to come remains a cantilever, grade A offices with property attributes that surround sustainability will continue to attract tenants and remain resilient, analysts said.
Their picks are Keppel Reit with a S $ 1.40 price target, CapitaLand Integrated Commercial Trust (CICT) with a S $ 2.50 target and Mapletree Commercial Trust (MCT) with a S $ 2.25 target.
At 11:24 a.m. On Thursday, Keppel Reit units were unchanged at 1.05 Singapore dollars, the CICT rose 0.02 Singapore dollars or 1 percent to 2.10 Singapore dollars, while the MCT rose 0.01 Singapore dollars or 0.5 percent to 2.09. Singapore dollars.
READ MORE: Embattled S-Reits headed for slow recovery next year
[ad_2]
