S'pore office Reits look promising amid Chinese tech giants' growth plans: DBS
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Potential beneficiaries from Chinese technology firms' entry to Singapore are Grade A prime Central Business District office landlords such as CapitaLand Commercial Trust and Keppel Reit, which have vacancies to be filled, said DBS analysts Rachel Tan and Derek Tan.
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DBS Group Research has reiterated its positive stance on Singapore office real estate investment trusts (Reits), citing a potential increase in demand due to the expansion plans of Chinese technology giants.
The report out yesterday noted that Tencent has 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.
Investors should "watch out for this as an inflection point", it said, adding that the sector remains attractive as it is trading at a price-to-net asset value ratio of 0.8 times.
Analysts Rachel Tan and Derek Tan dubbed Tencent's upcoming expansion as "a jab in the arm" for office landlords, noting that the entry of new investment implies new demand for office space.
"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, the analysts said.
They pointed to CCT's upcoming completion of integrated development CapitaSpring, and Keppel Reit's portfolio of quality 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 may attract Chinese tech firms.
Science Park properties will need to be redeveloped to attract the firms, they added.
DBS' top picks for the sector are Keppel Reit and Mapletree Commercial Trust (MCT).
DBS has issued "buy" calls on both, with a target price of $1.35 for Keppel Reit and $2.25 for MCT.
Keppel Reit units closed up 0.9 per cent at $1.11 while MCT units closed flat at $2 yesterday.
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