Time to relook Singapore office Reits as China tech giants spur demand: DBS
Grade A prime CBD office landlords such as CCT and Keppel Reit seen as potential beneficiaries
Singapore
DBS Group Research on Wednesday reiterated its positive stance on Singapore office real estate investment trusts (Reits), citing a potential upcycle in office demand, spurred by the expansion plans of Chinese tech giants.
In their report, analysts Rachel Tan and Derek Tan pointed to recent news that Tencent had picked Singapore as its Asia hub after setbacks in the United States and India, with other Chinese giants, including Alibaba and ByteDance, also reportedly making plans to expand in the Republic.
"While the return of existing office space will likely be more gradual, demand from these tech giants is immediate, judging by the job postings on various career platforms," they said.
The analysts also noted the office market's high occupancy and limited upcoming supply until 2022. Given these factors, they believe the new demand, and its potential multiplier spillover impact, will "spur the Singapore office market to its next phase of upcycle, along with the recovery of the Singapore economy".
Potential beneficiaries from the entry of the Chinese firms are Grade A prime central business district office landlords such as CapitaLand Commercial Trust (CCT) and Keppel Reit, which have vacancies to be filled, DBS said.
The analysts pointed to CCT's upcoming completion of integrated development CapitaSpring, and Keppel Reit's portfolio of quality Grade A office assets.
While business parks could also stand to gain, the analysts said they understood there are minimal vacancies in the Alexandra and one-north precincts, which are precincts that may attract these Chinese tech firms. Science Park properties, they said, will need to be redeveloped to attract the firms to relocate there.
On a whole, DBS says the sector remains attractive as it is trading at an average of 80 per cent of its net asset values. Its top picks are Keppel Reit and Mapletree Commercial Trust (MCT). DBS has "buy" calls on both, with a target price of S$1.35 for Keppel Reit and S$2.25 for MCT.
Units of Keppel Reit ended Wednesday at S$1.11, up $0.01 or 0.9 per cent. MCT units finished flat at S$2.
READ MORE: Flow of China tech firms to Singapore bodes well for jobs, property sector
