Monday, July 24, 2023

Why Office Rentals In Singapore Are So Resilient?

You may have read news about empty office properties in the United States and Europe, especially after the resulting work from home (WFH) trend that started during the COVID-19 period, and the rising interest rates that came thereafter. Vacancies are going up and rentals are coming down at those places. These brought about the drop of office property valuations, and property-related counters and funds are taking a hit.

Yet right here in Singapore, we see the demand for office spaces is still there, with healthy rents and high occupancy rate in the downtown area. In the real estate investment trust (REIT) scene, we can observe that overseas-based ones, especially those whose properties are in the United States, are under downward pressure as compared to those whose properties are mostly locally based.


There are, in my opinion, several reasons why and all played some part in the net positive of things. 




The first is geopolitical, with Singapore seen as a place of stability and being business friendly over other locations. This strength was already present for the past few decades or so, and it is still present now.


The second is the hybrid work system encouraged by the Singapore government that workers could WFH several days per week. Employees had tasted the benefits of WFH, and employers knew this, thus having a hybrid work location arrangement is a win-win for productivity and morale boosting.


While slightly contradicting to the second reason above, but still relevant, the third one is the Asian work culture at play, where in-person presence is preferred over virtual ones. Even without the culture card, it is cited that working from office could promote better collaboration among staff, and between staff and management.


The last reason can be attributed to the size of Singapore; with public transport, the average maximum time to reach anywhere from point A to point B is around one hour, barring any big jams and delays. With more subway lines being constructed, we may see the average maximum travelling time reducing in the future.


Operationalising Into Investing


Being an investment blog, the most important issue to answer is how to capitalise on this. The most direct way is via REITs and there are a few Singapore-listed REITs available. However, most REITs are not pure Singapore office play (e.g., Keppel REIT also has Australian, Japanese and South Korean office properties) and they likely contain other property types within (e.g., CapitaLand Integrated Commercial Trust has retail properties).


There are many other indirect ways to capitalise as per my associative investing method1: one is public transport (e.g., SBS Transit) and another is retail REITs to capture the spillover effects of workers patronizing these places during mealtimes and/or after work (e.g., CapitaLand Integrated Commercial Trust comes into play again).


One last tip: have you ever wondered why public transport and roads are getting crowded? It is because they are heading to work (and a portion of them are going to offices). And have you noticed why usually on Fridays they are not so crowded? It is because (my anecdotal viewpoint) that most people prefer to WFH on that day.




The Bedokian is not directly vested in the counters mentioned in this post.




1 – The Bedokian Portfolio (2nd Ed), p137-138

No comments:

Post a Comment