Nonetheless, the analysts note that the accelerating WFH trend will not eliminate the importance of office space. “We believe many companies will still want to retain a physical presence in the city centre or in key business districts in other states,” the remark. To that end, they anticipate the adoption of a more formal hybrid model that combines both work from home and office.
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In addition, Loong and Natarajan believe decentralisation of regional operations by companies as part of their risk management efforts could support demand for office space. “There may also be some potential positive spillover to co-working spaces, due to the quality and flexibility offered – but the medium- to long-term impact is uncertain, due to the cost differential between office rental and charges by co-working facilities,” they add.
In Singapore, the analysts believe international real estate investors will be drawn to the city state as it pursues more sustainable and integrated office developments. To that end, their outlook for the sector remains positive. “As sustainability and mixed developments will be the theme going forward, the country should attract high-profile corporate tenants that will support office rentals over the long term,” they note.
They maintain their “overweight” rating for Singapore REITs. “Among all the sub-sectors, the office segment is second-best, preferred next only to the resilient industrial segment,” they say.
The way Loong and Natarajan see it, investors should keep their exposure to REITs, or companies that own quality assets, as a long-term sustainable investment strategy. Their top picks for Singapore are Suntec REIT (rated “buy” with a target price of $1.75) and Prime US REIT (rated “buy” with a target price of US$1.03).
“These REITs have ESG scores of 3 and above, based on our proprietary ratings,” the analysts add.
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As at 3pm, units in Suntec REIT and Prime US REIT are trading at $1.46 and 84 US cents.
Photo: Bloomberg
