In the post-pandemic environment, the office will never exceed its past heights, but the future for Singapore and Hong Kong offices is encouraging.
In these areas, comparatively tiny residences, quick commutes to work and young tech business residents bode well for property trusts that concentrate on these sectors.
In these hubs, domestically based real estate investment trusts (Reits) have outperformed their peers this year in Australia and Japan, and expect to climb on the basis of a move to economically responsive stocks.
According to Bloomberg-compiled results, Hong Kong’s Champion Reit tenants that include Singapore’s Keppel Reit and Mapletree Commercial Trust, Citigroup, has defeated baskets of evenly weighted trusts in Australia and Japan.
Of note, no one expects workplaces in Singapore and Hong Kong to be left unscathed by the pandemic. Companies such as Citigroup, Singapore’s Mizuho Financial Group and Hong Kong’s Macquarie Group are giving up office space as revenue decline and face a future for certain remote jobs.
According to statistics from the Colliers International Company, Singapore’s vacancy rates have now risen from 3.3 per cent a year ago to 4.9 per cent in the third quarter, whereas the rates for Hong Kong’s Grade A office spaces increased to 9 per cent in September from 6.1 per cent during the same time last year.
But the coronavirus has been held under relative regulation by these towns.
These cities do not have a large hinterland of suburbs to which employees will migrate, unlike London or New York. That’s presumably why their Reits are just around 13 percentage points from minimizing losses this year, although Reits’ Australian and Japanese offices are down 24 percent on average.
Mr Shern-Ling Koh, a fund manager at Principal Real Estate Investors, said that Singapore’s office sector is likely to be in one of the best strategic location” globally because living spaces are limited, availability is tight and tech firms are progressively looking for office space in the region. He said that after Reits’ office in Singapore, he liked those in Hong Kong and then Tokyo, in that order.
The implementation of a contentious national security bill by Hong Kong this year is bringing businesses to Singapore, while tech giants such as Tencent Holdings of China and Amazon.com are setting up regional offices in the city of South-East Asia.
“These new office-space tenant from these newer industries should offset what Singapore may lose in others,”these incoming office space tenant in these newer industries should counter what Singapore might lose out.
This allows Reits to be relatively inexpensive in these two cities, while providing attractive dividend yields, especially as compared to bond yields.
For the 2021 fiscal year, analysts predict that Keppel Reit and Mapletree Commercial would produce 5.4% and 4.1% respectively, while Champion Reit will give 5.3%.
“Work from Home (WFH) will stay prevalent for some time, but the long-term goal of the office is an illusion and it’s a good time to buy office Reits in Singapore and Hong Kong.”Remote employment will remain prevalent for some time, but the office’s long-term demise is an illusion and it’s a good time to buy Reits in Singapore and Hong Kong.