Singapore office Reits: Are better days ahead?

Research teams appear to be cautiously optimistic on some Singapore-listed real estate investment trusts (S-Reits) focused on office properties.

  • Office rents may see a gradual recovery soon, said analysts
  • CapitaLand Integrated Commercial Trust (SGX: C38U) share price up 1.4% on Thursday
  • Keppel Reit (SGX: K71U) shares are ‘fairly valued’ at current levels, RHB noted
  • Mapletree Commercial Trust (SGX: N2IU) unit price finishes Thursday 1.4% higher
  • Buy and sell Singapore office reits stocks with an IG account

Office, retail Reits favoured in short run: Jefferies

In a recent research note, Jefferies analyst Krishna Guha said he likes hospitality as a long-term play.

However, in the near term, his sub-sector preference rests with commercial Reits with office and retail exposure in the central business district (CBD) and city fringe, followed by industrial Reits.

As older buildings - totalling 1.5 million square feet of office space - are taken out for redevelopment, ‘there is room for rental squeeze’ in 2022, according to Jefferies.

Similarly, UOB analysts said displaced tenants from buildings scheduled for redevelopment, such as AXA Tower and Fuji Xerox, are looking for office space.

Gradual recovery of rents may commence in the second half of 2021 after stabilisation in the first half, UOB’s research team said.

Furthermore, the CBD Incentive Scheme, which encourages the conversion of older office buildings into mixed-use developments or hotels, could reduce office stock within core CBD areas, UOB added.

Which commercial S-Reits do analysts like?

As more employees in Singapore return to the office, landlords of commercial properties and convention spaces in the CBD and city fringe - such as Suntec Reit, Mapletree Commercial Trust (MCT) and CapitaLand Integrated Commercial Trust (CICT) - should receive a sentiment boost, Jefferies believes.

Guha upgraded Keppel Reit to ‘buy’ and raised its target price to S$1.40. He also reiterated ‘buy’ on Ascendas Reit, CICT, Suntec Reit, and MCT.

In UOB’s view, Suntec City Office Towers could maintain their positive rental reversion, as their average expiring rents are low at S$8.79 per square foot (psf) per month for 2021.

Returning office workers and convention attendees will also improve shopper traffic and tenant sales at Suntec City Mall, said UOB analysts, which recommended ‘buy’ on Suntec Reit shares with a S$1.72 target.

For CICT, rental reversion for its office portfolio is likely to be ‘slightly negative’ in 2021 due to high average expiring rents of S$11.97 psf per month for Asia Square Tower 2 and S$11.48 psf per month for CapitaGreen, UOB analysts noted.

Still, CICT’s downtown malls, such as Bugis Junction and Plaza Singapura, will benefit from more employees returning to their offices, UOB added, giving a ‘buy’ call on CICT shares with a S$2.42 target.

Keppel Reit attracted a ‘neutral’ rating and S$1.20 target from RHB, and a ‘sell’ idea from Maybank with a S$0.95 target.

At Keppel Reit’s current share prices, the stock is ‘fairly valued’ and investors may wish to ‘accumulate’ on dips, RHB said.

In contrast, Maybank analysts said they expect Keppel Reit to continue seeing headwinds in leasing out vacancies and at pressured rents, amid a higher risk of tenants downsizing. Keppel Reit’s distribution-per-unit growth is also ‘unexciting’ versus peers, Maybank added.

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