Singapore Office - DBS Research 2023-12-14: Time To Shine Once More

• Market concerns on potential de-rating of office asset valuations are likely unfounded for Office S-REITs, which have 54%-93% of their overall valuation attributable to the Singapore office sector. Overall metrics (positive reversions driving cashflows, high return to office statistics at > 85% for office and supportive demand-supply dynamics in the coming years) as well as a stabilising interest rate environment has made us turn more positive on the sector.
• - Read this at SGinvestors.io -
• We believe the scarcity of Grade A Core CBD space will likely persist longer than expected due to the absence of new office sites and removal of offices for redevelopment. This trend is projected to drive the overall vacancy rate to below 4% within the next 2 years (or earlier if demand stems from economic growth). Thus, overall rents could remain steady – a catalyst for the office sector - rather than decline.

Last overhang on the sector to be lifted soon with the FY23 year-end valuation update

• - Read this at SGinvestors.io -
• The commercial/office S-REIT sector has been beaten severely this year, having underperformed the other asset classes. Share prices have declined 19% year-to-date throughout 2023. This is largely due to concerns of a potential decline in asset valuation that could cause gearing to spike above the comfort level of 40%.
• Commercial/office S-REITs have the tightest cap rates and higher gearing levels of between 39% to 43% compared to the other asset classes. This has been one of the biggest overhangs on the sector since interest rate hikes started in late 2022.
• Key reasons for our optimism are as follows:

Potentially the last asset valuation adjustment at FY23 year-end, as interest rates peak.

• Read more at SGinvestors.io.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-12-14 SGinvestors.io

---