T-bill yields are falling. Time to look at Singapore REITs?

Interest rates have fallen sharply in the past few weeks.

Recently, we saw the 6-month Singapore T-bill fall to 2.56%.  The best 6-month fixed deposit rate in Singapore has also declined to 2.5%. 

Not surprisingly, the interest rates on the UOB One and OCBC 360 accounts have also been cut. 

At the same time, we have seen rising economic uncertainty following the sweeping tariffs announced by US President Donald Trump. 

As a result, I have seen more discussion on Singapore REITs in the Beansprout telegram community. 

Many investors are wondering if Singapore REITs will benefit from falling interest rates, and if they are a safe place to ride out the current market volatility. After all, some of these REITs appear to offer fairly attractive dividend yields. 

Let us dive deeper to find out. 

Singapore government bond yields have fallen

With rising concerns of potential global recession following sweeping tariffs announced by the US, the 10-year Singapore government bond yield has fallen to 2.47% on 4 April 2025 from 2.92% on 1 January 2025. 

However, a divergence in outlooks across sub-sectors, strength of the Singapore dollar relative to regional currencies, and elevated borrowing costs may continue to put pressure on their distributions. 

In 2024, distributable income growth of Singapore REITs continues to be tempered by higher finance costs, even in spite of revenue growth, as the majority of the REITS have more than 60% of debt on fixed rates. The effect of rate cuts in 2024 are thus likely to only begin to materialise over the next 12 months. 

 In the meantime, there is a divergence in the outlook across various REIT subsectors, as reflected in the most recent 4Q24 data. 

Office rents continue to moderate

Vacancy rates for Category 1 offices saw a surprise decline by 1.2 percentage points to 9.1% as at 4Q24. 

Category 1 offices are office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area. 

Category 2 offices, which refer to the remainder of the office stock, however, saw vacancy rates remaining elevated at 11.3%. 

This suggests a continued flight to quality in a tenants’ market, amid significant new additions to Grade A CBD office supply, with IOI Central Boulevard Towers adding a total of 1.26 million sq ft of premium Grade-A office space and 30,000 sq ft of retail and F&B space in 2024. 

Amid heightened net supply, particularly in the CBD area, office rents continue to be muted, with the URA office rental index down 0.9% QoQ in 4Q24. 

Office rental index fell by 0.9% QoQ in 4Q24

Rising operating costs against a cautious macroeconomic and hiring outlook are expected to keep overall office rents subdued, especially given elevated market vacancy rates and sizable new supply.

In 2025, Keppel South Central is expected to add 613,500 sq ft of CBD office space, while the completion of the Shaw Tower redevelopment and Solitaire on Cecil in 2026 are expected to add a further 631,500 sq ft of office space in the CBD. 

Retail rents stable 

Over the last four quarters, retail vacancy rates have remained largely steady, with outside Central Area and within the Central Area but Outside Orchard vacancy rates at 5.9% and 6.8% respectively. 

Orchard vacancy rates continued to decline in 4Q24, down 0.7pp QoQ to 6.3%, and more than halving from close to 14% as at 1Q23, likely reflecting rising retailers’ confidence in a continued recovery in visitor arrivals into Singapore, led by both leisure travellers and MICE (Meetings, Incentives, Conferences, and Exhibitions) events. 

Singapore’s tourism arrivals increased by 21% to 16.5 million in 2024, reaching the upper end of the Singapore Tourism Board (STB)’s forecast. STB expects a further improvement in tourist arrivals to 17.0 to 18.5 million in 2025.

As a result, the URA retail rental index has been stable, rising 0.6% QoQ in 4Q24. With below-historical-average supply over the next few years, property consultancy CBRE expects overall prime retail rents to recover to pre-pandemic levels in 2025. 

Retail rents have remained stable

Industrial rent growth slowest since 4Q21

Overall industrial rents were up marginally in 4Q24, led by Multiple-User Factories with a strong 3.1% QoQ growth, followed by Warehouses at 0.9% QoQ, Business Park at 0.2% QoQ and Single-User Factories at 0.1% QoQ. 

It was a year of healthy 3.5% rental growth for industrial properties for the full year 2024, albeit a moderation from the 8.9% increase seen in 2023. 

Industrial rent growth has slowed down

While vacancy rates at Business Parks saw a surprise dip in 3Q24, this was reversed in 4Q24, with vacancy rates up 0.9pp to 22.1%, as vacancy rates continued to inch towards the high of 25.1% seen in 2010. 

For the full year, vacancy rates across other industrial subsectors were mixed but broadly stable: Multiple-User Factories improving 0.5pp YoY to 9.0%, Single-User Factories saw vacancies flat YoY at 12.0% while Warehouses saw vacancies up a modest 0.1pp YoY to 8.5%.

An additional 1.2 mn sqm of industrial space is expected to be completed in 2025, with a further 1.1 mn sqm of space to be completed in 2026, totalling a significant 2.3 mn sqm of industrial space over the next two years. 

In contrast, average annual supply of industrial space was 0.9 mn sqm in the past three years, with average annual demand of only 0.6 mn sqm. 

While the total expected completion over the next two years includes 0.9 mn sqm of single-user factory space, which is typically developed by the industrialists for their own use, the significant supply pipeline of industrial space across warehouses, multiple-user factories and business parks are expected to add pressure to rents and vacancies in the near term. 

Business parks in particular are expected to see the greatest pressure, given muted new demand and the consolidation of space requirements by companies looking to optimise their real estate footprint, amid a flight to quality and supported by a continued pipeline of new CBD office space and elevated vacancy rates. 

Singapore REITs’ distributions remain under pressure

The majority of Singapore REITs continued to see a decline in their distribution per unit in the most recent earnings announcement. 

The most significant decline in distributions were seen in REITs with significant overseas assets and were impacted by currency weakness relative to the Singapore dollar, as well as those which saw significantly higher borrowing costs. 

On the other hand, REITs in the industrial and retail sub-sectors, particularly those with a sizeable portion of their assets in Singapore, had relatively resilient distributions compared to other REITs. 

Change in distribution per unit (in %) of Singapore REITs

What would Beansprout do?

Despite falling bond yields, we remain selective as we expect the distributions of REITs with weaker fundamentals to remain under pressure with the mixed outlook across various sub-sectors. 

Our preference is for REITs with the ability to improve on distributions including AIMS APAC REIT, OUE REIT, and Elite UK REIT.

Find the best Singapore REITs and compare their latest valuation with our Singapore REITs Screener.

Price to book valuation of Singapore REITs

If you are interested to learn more about the outlook of Singapore REITs, join us for our upcoming free webinar on 16 April, where we will discuss if the share prices of Singapore REITs will recover with falling bond yields. Register for free here. 

Download the full report here. 

Join the Beansprout Telegram group for the latest insights on Singapore stocks, REITs, bonds and ETFs. 

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