The office may never reach its past heights in the post-pandemic world, but the outlook for Singapore and Hong Kong offices is promising.
Relatively small homes in these cities, short commutes to work and new tech firm tenants bode well for property trusts that focus on these markets.
Domestically focused real estate investment trusts (Reits) in these hubs have outperformed their peers in Australia and Japan this year, and continue to rise on the back of a rotation to economically sensitive stocks.
Hong Kong’s Champion Reit, whose tenants include Citigroup, Singapore’s Keppel Reit and Mapletree Commercial Trust, has beaten baskets of equally weighted trusts in Australia and Japan, according to Bloomberg-compiled data.
To be sure, no one expects Singapore and Hong Kong offices to be left unscathed from the pandemic. Companies like Citigroup, Mizuho Financial Group in Singapore and Macquarie Group in Hong Kong are giving up office space as demand wavers and they confront a future of some remote work.
Singapore’s vacancy rates have already risen to 4.9 per cent in the third quarter from 3.3 per cent a year earlier, while the rates for Hong Kong’s Grade A office spaces were up at 9 per cent in September from 6.1 per cent over the same period last year, according to data from Colliers International Group.
But these cities have kept the coronavirus under relative control.
Unlike London or New York, these cities do not have a significant hinterland of suburbs where workers can flee to. That is probably why their Reits are just about 13 percentage points from erasing losses this year, while Australian and Japanese office Reits are down an average of 24 per cent.
Singapore’s office market is likely “in one of the best positions” globally because living spaces are small, supply is tight and tech companies are increasingly looking to the country for office space, said Mr Shern-Ling Koh, a portfolio manager at Principal Real Estate Investors. He said that after Singapore’s office Reits, he likes those of Hong Kong and then Tokyo, in that order.
Hong Kong’s imposition of a controversial national security law this year is drawing firms to Singapore, while tech giants like China’s Tencent Holdings and Amazon.com are setting up regional headquarters in the South-east Asian city.
“These incoming office-space users from these newer industries should offset what Singapore may lose in others,” said Singapore-based fund manager Yoojeong Oh of Aberdeen Standard Investments Asia.
It helps that Reits in these two cities are relatively cheap, while offering attractive dividend yields, especially when compared with bond yields.
Analysts estimate Keppel Reit and Mapletree Commercial will yield 5.4 per cent and 4.1 per cent for the 2021 fiscal year respectively, while Champion Reit will offer 5.3 per cent.
Mr Joachim Kehr, portfolio and regional manager for Asia-Pacific at Centersquare Investment Management, said: “Remote working will remain prevalent for some time, but the long-term demise of the office is an illusion and it’s a good time to buy office Reits in Singapore and Hong Kong.”