Office S-REITs exposure to the re-opening theme is not being fully appreciated by investors. We believe they will play catch up soon as more workers return to office.

Group Research – Equities16 Jun 2021

  • Office S-REITs exposure to the re-opening theme not fully appreciated by investors
  • Singapore office to regain growth momentum in 2H21 on expected relaxation of work-in-office rules
  • US Office S-REITs well positioned to ride the longer-term growth of tech within the US

Office S-REITs’ exposure to “re-opening theme” not fully appreciated by the market. Despite keeping distribution per unit (DPU) relatively stable through FY20, the share prices of SG Office S-REITs and US Office S-REITs have lagged the recovery compared to other sectors. We believe Office S-REITs will play catch up soon.

Singapore office en route towards ‘new normal’ despite recent setbacks. We see the implementation of Phase 2 (Heightened Alert) as a temporary disruption and do not expect office tenants to undertake major shifts in their office requirements as they plan two to five years ahead. We believe the recovery will resume come 2H21 as (i) cap on workers returning to office is relaxed, and (ii) companies restart their leasing discussions.

US corporations starting to return to office from mid-year onwards. Since April, media reports indicate that more corporates and banking institutions are planning to return to office from mid-year onwards, which is positive for overall sentiment of US office plays in 2H21. While occupancies had dipped in 1H21, we believe we are nearer the bottom as companies start planning for their longer-term real estate needs.

We maintain our positive stance on Office S-REITs. Our top picks are Keppel REIT, Mapletree Commercial Trust and Prime US REIT.