Office landlords and real estate investment trusts (REITs) in the Asia Pacific region are well placed to cope with secular changes being ushered in by Covid-19 pandemic, S&P Global Ratings said in a report released on Thursday.
The report titled 'Property In Transition: Remote Working Not Lights Out For Asia Pacific Office Players' argues that working from home as the norm once seemed a remote possibility globally and in the Asia-Pacific region.
However, the global pandemic has triggered adoption of working from home at an unprecedented pace. The shift is likely to reduce demand for office real estate over the next few years.
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, the report expects the gap between face rent and effective rent to continue to widen amid heightened vacancy rates. It will be a tenants' market with leases likely to be shorter and with optionality for extensions.
"We conducted a severe stress test on office landlords and REITs in Asia Pacific gateway cities," said Esther Liu, an analyst at S&P Global Ratings.
"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."
Besides, despite the proliferation of working from home, any deterioration of business profiles will likely be gradual and manageable within the next one to two years.
These players have so far demonstrated strong resilience. 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 added.
( With inputs from ANI )
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