What's driving weakness in Singapore REITs?

What happened?

Following the US Federal Reserve interest rate cut in September, the 10-year Singapore government bond yield fell to a low of about 2.40%. 

However, it has since bounced to 2.90% as of 7 November 2024, driven by stronger than expected US economic data and moderation in rate cut projections. 

The election of Donald Trump as the next US President has led to a further bounce in government bond yields, with expectations that Trump’s proposed policies may lead to greater inflationary pressures. 

In the meantime, the fundamentals across various REIT sub-sectors remain mixed.

Rising office vacancy rates

The completion of IOI Central Boulevard Towers added 1.26 million sq ft of premium Grade-A office space in the CBD, which we believe is a key reason for the continued increase in office vacancy rates from 7.9% in 1Q24 to 10.3% in 3Q24. 

Amid heightened net supply, office rents continue to be muted, with the URA office rental index down 0.5% QoQ. 

This was also reflected in a continued moderation in rent reversions at Suntec REIT’s One Raffles Quay and MBFC Towers 1&2, with rent reversions of 6.8% in 3Q24 vs. 14.4% in 3Q23. 

Retail rents stabilising

While the URA retail rental index continues to be muted, rents rose 0.3% QoQ in 3Q24, with property consultancy CBRE estimating island-wide prime retail rents to be up 4.1% YoY in 3Q24 to reach S$26.95, led by Orchard Road prime retail rents at S$37.45, up 4.8% YoY. 

Over the last four quarters, retail vacancy rates outside the Central Area, and within the Central Area but Outside Orchard have remained largely steady, with Orchard vacancy rates declining meaningfully from close to 14% as at 1Q23 to 7.0% as at 3Q24, likely reflecting rising retailers’ confidence in a continued recovery in visitor arrivals into Singapore. 

In the first half of 2024, tourism receipts were up 19.6% YoY to S$14.9 bn, led by visitors from China.

Industrial rent growth slowest since 4Q21

While overall industrial rent growth remained positive at +0.3% QoQ, this represented the slowest rate of growth since 4Q21, with declines already seen across both business parks (-0.2% QoQ) and single-user factories (-0.3% QoQ). 

With an additional 1.6 mn sqm of industrial space expected to be completed in 2025, the highest annual supply since 2017 when 1.9 mn sqm of space was completed, against average annual demand of 0.5 mn sqm over the last three years, we expect pressures on industrial rents and vacancy rates to intensify in 2025.

What would Beansprout do?

We remain selective on Singapore REITs as we expect the distributions of REITs with weaker fundamentals to remain under pressure. 

In addition, the mixed performance across various sub-sectors, as well as elevated bond yields may present further headwinds. 

Our preference is for REITs with the ability to improve on distributions through active portfolio management, such as AIMS APAC REIT. 

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

If you are interested to learn more about the outlook of Singapore REITs, join us for our upcoming free webinar on 26 November, where we will discuss what will drive the share prices of Singapore REITs in 2025. Register for free here. 

Join us at "SGX Discovery Series with Beansprout: Navigating the landscape of European S-REITs" on 19 November, where we’ll dive into the exciting prospects of investing in this dynamic sector. This event features exclusive insights from senior executives of leading European REITs, including Cromwell European REIT, Elite UK REIT, and IREIT Global. Register for free here. 

Download the full report here.

Related Links:

• AIMS APAC REIT - Asset repositioning gives it the edge
• Elite UK REIT - Room for positive asset repricing

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

Important Disclosures

Analyst Certification and Disclosures 

The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst herein. The analyst(s) named in this report (or their associates) does not have a financial interest in the corporation(s) mentioned in this report.

An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

Company Disclosure

Global Wealth Technology Pte Ltd (“Beansprout”) does not have any financial interest in the corporation(s) mentioned in this report.

Disclaimer

This report is provided by Beansprout for the use of intended recipients only and may not be reproduced, in whole or in part, or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set out herein.

You acknowledge that this document is provided for general information purposes only. Nothing in this document shall be construed as a recommendation to purchase, sell, or hold any security or other investment, or to pursue any investment style or strategy. Nothing in this document shall be construed as advice that purports to be tailored to your needs or the needs of any person or company receiving the advice. The information in this document is intended for general circulation only and does not constitute investment advice. Nothing in this document is published with regard to the specific investment objectives, financial situation and particular needs of any person who may receive the information. 

Nothing in this document shall be construed as, or form part of, any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities. The data and information made available in this document are of a general nature and do not purport, and shall not in any way be deemed, to constitute an offer or provision of any professional or expert advice, including without limitation any financial, investment, legal, accounting or tax advice, and shall not be relied upon by you in that regard. You should at all times consult a qualified expert or professional adviser to obtain advice and independent verification of the information and data contained herein before acting on it. Any financial or investment information in this document are intended to be for your general information only. You should not rely upon such information in making any particular investment or other decision which should only be made after consulting with a fully qualified financial adviser. Such information do not nor are they intended to constitute any form of financial or investment advice, opinion or recommendation about any investment product, or any inducement or invitation relating to any of the products listed or referred to. Any arrangement made between you and a third party named on or linked to from these pages is at your sole risk and responsibility. 

You acknowledge that Beansprout is under no obligation to exercise editorial control over, and to review, edit or amend any data, information, materials or contents of any content in this document. You agree that all statements, offers, information, opinions, materials, content in this document should be used, accepted and relied upon only with care and discretion and at your own risk, and Beansprout shall not be responsible for any loss, damage or liability incurred by you arising from such use or reliance. 

This document (including all information and materials contained in this document) is provided “as is”. Although the material in this document is based upon information that Beansprout considers reliable and endeavours to keep current, Beansprout does not assure that this material is accurate, current or complete and is not providing any warranties or representations regarding the material contained in this document. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject to change without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Any reference to past performance should not be taken as an indication of future performance. To the fullest extent permissible pursuant to applicable law, Beansprout disclaims all warranties and/or representations of any kind with regard to this document, including but not limited to any implied warranties of merchantability, non-infringement of third-party rights, or fitness for a particular purpose. 

Beansprout does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained in this document. Neither Beansprout nor any of its affiliates, directors, employees or other representatives will be liable for any damages, losses or liabilities of any kind arising out of or in connection with the use of this document. To the best of Beansprout’s knowledge, this document does not contain and is not based on any non-public, material information. The information in this document is not intended for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to law or regulation, or which would subject Beansprout to any registration requirement within such jurisdiction or country. Beansprout is not licensed or regulated by any authority in any jurisdiction or country to provide the information in this document.

As a condition of your use of this document, you agree to indemnify, defend and hold harmless Beansprout and its affiliates, and their respective officers, directors, employees, members, managing members, managers, agents, representatives, successors and assigns from and against any and all actions, causes of action, claims, charges, cost, demands, expenses and damages (including attorneys’ fees and expenses), losses and liabilities or other expenses of any kind that arise directly or indirectly out of or from, arising out of or in connection with violation of these terms, use of this document, violation of the rights of any third party, acts, omissions or negligence of third parties, their directors, employees or agents. To the extent permitted by law, Beansprout shall not be liable to you, any other person, or organization, for any direct, indirect, special, punitive, exemplary, incidental or consequential damages, whether in contract, tort (including negligence), or otherwise, arising in any way from, or in connection with, the use of this document and/or its content. This includes, without limitation, liability for any act or omission in reliance on the information in this document. Beansprout expressly disclaims and excludes all warranties, conditions, representations and terms not expressly set out in this User Agreement, whether express, implied or statutory, with regard to this document and its content, including any implied warranties or representations about the accuracy or completeness of this document and the content, suitability and general availability, or whether it is free from error. 

If these terms or any part of them is understood to be illegal, invalid or otherwise unenforceable under the laws of any state or country in which these terms are intended to be effective, then to the extent that they are illegal, invalid or unenforceable, they shall in that state or country be treated as severed and deleted from these terms and the remaining terms shall survive and remain fully intact and in effect and will continue to be binding and enforceable in that state or country. 

These terms, as well as any claims arising from or related thereto, are governed by the laws of Singapore without reference to the principles of conflicts of laws thereof. You agree to submit to the personal and exclusive jurisdiction of the courts of Singapore with respect to all disputes arising out of or related to this Agreement. Beansprout and you each hereby irrevocably consent to the jurisdiction of such courts, and each Party hereby waives any claim or defence that such forum is not convenient or proper.