CapitaLand Commercial Trust's CapitaGreen. (Photo: REITsWeek)CapitaLand Commercial Trust's CapitaGreen. (Photo: REITsWeek)

In line with the Global Industry Classification Standard, office REITs are defined as real estate investment trusts that are primarily involved in the acquisition, development, ownership, management and leasing of office properties.

Properties in office REITs are typically located within a country’s central business district and are home to headquarters of multinational concerns such as banks, financial companies, law firms and investment companies.

Advantages of Office REITs

Tenants of an office property, especially anchor tenants, usually take on relatively longer leases as compared to tenants occupying industrial or retail properties. The longer leases usually result in a relatively longer weighted average lease expiry (WALE) for office REITs as compared to other REITs.

Disadvantages of Office REITs

The time taken to complete an office development will typically go over a couple of years. As such, office floor inventory is often thought to lag behind the economic cycle, making office REITs relatively not as responsive to prevailing economic conditions. This disproportionately exposes office REITs to oversupply issues, especially during economic downturns.

Office properties are also less adaptable as compared to industrial properties. Floor space cannot be as easily repurposed for other functions, such as manufacturing or logistics, in times when there is lesser demand for office space.

Click here for more REITs and real estate investment terms.
Click here for more REITs and real estate investment terms.

By Ridzwan Rahmat

Ridzwan has been analysing REITs and business trusts since 2008, and personally manages a portfolio comprising mainly of SGX-listed REITs. He founded REITsWeek in 2013.