Singapore - Domestic economy recovery from reopening
Economic uplift from the easing of social distancing measures and the border reopening. Since the end of March, Singapore has made a decisive shift to a new phase of living with COVID-19 as an endemic.
Retail and hospitality – Group size for dining at F&B establishments, has increased from five to 10 fully vaccinated persons. The Vaccinated Travel Framework will allow fully vaccinated travelers and children aged 12 and below with COVID-19 tests two days before departure are now allowed into Singapore, no longer have to take an antigen rapid test within 24 hours of arrival. Travelers are not restricted to taking only designated flights to enter Singapore quarantine free. The quota on the number of daily arrivals was abolished.
Office – Up to 75% of employees can return to the workplace, compared with the previous limit of 50%. The increase in office workers will also improve retail foot traffic. In 1Q22, Central Business District (CBD) saw Grade A office rents record the fastest quarterly growth since rents turned around in Q2 2021, according to JLL Singapore in a recent report. Grade A office rents in the CBD rose 2.3% to S$10.46 per square foot (psf) per month (pm) in the latest quarter, up from Q4 2021's S$10.23. Rental rates have recovered by 6.9% from their recent lows in 1Q21.
Valuation / Recommendation. Investors should add exposure to retail, hospitality and office REITs as proxy to reopening and as an inflation hedge. Suntec REIT (SUN SP), Frasers Centrepoint Trust (FCT SP), Ascott REIT (ART SP) and Keppel REIT (KREIT SP) remain reasonably priced at valuations of close to 1.0x P/B (0.8-1.05x) and forecast distribution yields of between 4.5-5.1%.