Office REITs likely to take a huge hit as Brexit unfolds, say analysts

Hospitality and residential, meanwhile, are least affected.

The ambiguity of Brexit continues to send aftershocks across the shores of Singapore, as analysts fear that the city-state’s office segment is at risk relative to hospitality and residential.

According to a report by UOB Kay Hian, the potential loss of access to the EU’s single market could jeopardise London’s standing as the financial hub of Europe.

Meanwhile, while the likelihood of a slowdown in the hospitality and development segments could be imminent, UOB Kay Hian said these segments are also likely to be somewhat buffered by the potential pick-up in leisure travel and overseas buyers.

“A 10% drop in hotel RevPAR, commercial and residential prices will result in a 0.7-4.3% impact on valuations with Ho Bee Land (Ho Bee) the most affected and CDREIT the least affected among stocks with UK/Europe exposure under our coverage,” UOB Kay Hian noted.

Meanwhile, UOB Kay Hian explained that the rising expectations of a prolonged low interest rate environment amidst increased uncertainties as Brexit unfolds, will see continued interest in Property/REITs.

“The rising expectations of a prolonged low interest rate environment amid increased uncertainties as Brexit unfolds will see continued interest in property/REITs. The increase in the required return for UK/Europe exposure is more than compensated for by the built-in buffer and the drop in the risk-free rate,” UOB Kay Hian said.