Office landlords, REITs can cope with pandemic changes, says S&P

KUALA LUMPUR (April 8): Office landlords and real estate investment trusts (REITs) in the Asia-Pacific region are well equipped to cope with changes brought on by the Covid-19 pandemic, said S&P Global Ratings.

In a report titled "Property In Transition: Remote Working Not Lights Out For Asia-Pacific Office Players", the rating agency said remote working solutions have been on the rise during the pandemic, as companies look to implement work-from-home (WFH) arrangements within a short period of time.

S&P said it may be too early to talk of a complete overhaul of our ways of working, but there are early signs.

"In the next three to five years, we expect the gap between face rent and effective rent to continue to widen amid heightened vacancy rates. We expect it will be a tenants' market, with leases likely to be shorter and with optionality for extensions," it said.

S&P analyst Esther Liu said the agency has conducted a severe stress test on office landlords and REITs in Asia-Pacific gateway cities.

"It showed a rating impact of at most one notch for half of our rated portfolio by 2023. However, this is an extreme scenario that is quite distant from our base case," she said.

She added that despite the rapid increase of WFH, deterioration of business profiles will be gradual in the near term.

"Industry players have demonstrated resilience up to date.

"During 2020, they achieved high cash collection rates and maintained good occupancy rates, and valuation loss was manageable. We expect rent to drop further.

"From now, whether they can maintain high occupancy with well-executed leasing strategies will be crucial," Liu said.

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