Interest rates are falling. Are Singapore REITs more attractive?

What happened?

Interest rates have continued to trend lower in recent months.

Recently, we saw the 6-month Singapore T-bill yield still below 1.5%.  The best 6-month fixed deposit rate in Singapore has also declined to below 1.5%. 

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

This week, we also shared 4 Singapore REITs with dividend yields of above 5% as sentiment toward the sector improved. However, the sector continues to lag the Straits Times Index (STI) over the past year. 

Let us dive deeper to find out if it's worth buying into Singapore REITs.

Improved outlook from lower interest rates

Amid rising expectations of more interest rate cuts by the US Federal Reserve, the 10-year Singapore government bond yield declined to 2.06% on 23 November 2025 from 2.86% at the start of the year.

Singapore REITs have been proactively refinancing their debt maturity at lower interest rates, bringing down the cost of debt.  With SORA lower by about 180 basis points year-to-date, S-REITs have started to report lower finance costs in the third quarter of 2025. 

9M 2025 finance costs for Keppel DC REIT declined by 6.4% year-on-year. OUE REIT’s cost of debt declined to 4.1% in 3Q25, from 4.2% in 1H25. Fraser Centrepoint Trust also reported marginally lower average cost of debt, at 3.5% In 3Q 2025, from 3.7% in 2Q 2025. 

Looking ahead, we expect the performance of Singapore REITs to continue to diverge, with returns continuing to depend on factors such as sub-sector exposure, geographical mix, and the extent of debt that has been hedged at fixed rates.

Office vacancy rates on Grade A space improved 

Vacancy rates for Category 1 offices declined to 9.9% as at 3Q25 from 11.0% as at 2Q25. Category 1 offices are office space in buildings located in core business areas in Downtown Core and Orchard Planning Area which are 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 11.7%. 

This suggests a continued flight to quality in a tenants’ market, amid significant new additions to Grade A CBD office supply. No new office supply was introduced in 3Q25.  On the other hand, occupier demand remains broad-based, from sectors such as banking and finance, transport, government and flexible workspace operators. 

The vacancy rates for high-quality category 1 offices improved to 9.9% in 3Q25 from 11.0% in 2Q25. Vacancy rates for category 2 offices remained high at 11.7%. 

Office rents were relatively stable, marginally lower by 0.1% in 3Q25. 

Net supply declined by 0.26 million sq ft in 3Q25. URA office rental index down 0.1% quarter-on-quarter in 3Q25, slowing from the 0.3% quarter-on-quarter decline in 2Q25.   As net supply tightens, CBRE Research expects office rental market to maintain a positive momentum in 4Q25 and full year 2025 rental growth to reach 3%. 

In 2H 2025, 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 Central Business District. 

Retail rents steady

Retail vacancy rates declined, reflecting the robust leasing activities despite reports of numerous closures in 3Q25. Besides better-than-expected GDP growth and low unemployment rate, the vibrant MICE (Meetings, Incentives, Conferences, and Exhibitions) sector lifted the demand from retail rental space.

Vacancy rates in Central Area and Outside Central Area declined by 0.2 percentage point to 0.4  percentage point. Industry observers noted selective expansions across diverse sectors, led by F&B operators, fashion, beauty and health services. 

Singapore’s visitor arrivals increased by 2.3% year-on-year to 12.9 million in 9M 2025.  Singapore Tourism Board expects a further improvement in tourist arrivals to 17.0 to 18.5 million in 2025.

As a result, the URA retail rental index improved, rising 0.9% QoQ in 3Q25. 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. 

Industrial rents also improved marginally

Overall industrial rents were up by 0.5% quarter-on-quarter in 3Q25, led by Warehouse rental with a 0.9% quarter-on-quarter growth, followed by Single-User at 0.7% quarter-on-quarter increase in 3Q25.   

In 3Q25, supply decreased due to demolitions in older JTC estates as part of JTC’s land rejuvenation plans. 

Vacancy rates were lower across the board, except for multiple-user factory which reported unchanged in vacancy rate. Warehouse reported 0.8 percentage point decline in vacancy rate to 10.4%.  Vacancy rates at Business Parks and Single-user factory space improved to 23.0% and 10.9%, respectively in 3Q25.  

Going forward, vacancy rates are expected to remain stable with some moderation in rental rates.  

As at end-September 2025, the average annual supply is estimated at 1.2 million sqm for the next three years.  

Based on the average annual industrial space demand of about 0.6 million square metres, the market could face new supply outpaces absorption for certain segments. 

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 have rebounded with lower interest rates

Singapore REITs have staged a recovery, rebounding 7.2% in 3Q 2025 as the REITs announced healthy financial performance.  

However, the sector continues to lag the broader Straits Times Index (STI) which gained 8.5% in 3Q25.    

REITs with exposure to Singapore’s office and industrial assets, where demand and rental income have remained resilient, have outperformed by delivering growth in distribution per unit (DPU). 

In contrast, those with higher debt levels and substantial overseas exposure have underperformed, as pressure on funding costs and currency weakness weighed on distributions.

What would Beansprout do?

We see scope for Singapore REITs to benefit from a lower interest rate environment. 

Singapore REITs offer higher dividend yields compared to the Singapore T-bill and the 10-year average return of the latest Singapore Savings Bonds (SSBs).

The CSOP iEdge S-REIT Leaders Index ETF has an indicated dividend yield of 5.62% as of 14 November 2025.

Several steady blue chip REITs also offer higher dividend yields compared to the T-bill. For example, CapitaLand Integrated Commercial Trust (CICT) has a dividend yield of 4.7%, and Frasers Centrepoint Trust has a dividend yield of 5.4%, and Parkway Life REIT has a dividend yield of 3.7%. 

Within the sector, we favour REITs that can sustain and grow distributions through active portfolio management, such as asset enhancements, accretive acquisitions, or positive rental reversion. 

In addition, we expect CapitaLand India Trust, AIMS APAAC REIT and Elite UK REIT to deliver growth in distribution per unit.

Singapore REITs have an price-to-book ratio of 0.85x as of 30 September 2025. However, many REITs continue to trade at a price-to-book ratio of below 1.0x, as shown in the chart below.

You can find the best Singapore REITs and find their latest dividend yields with our Singapore REITs Screener.

Also, learn more about how Singapore REIT ETFs allow you to gain exposure to a diversified portfolio of Singapore REITs with a single trade. 

Explore Singapore REITs to understand how S-REITs work, sector breakdowns and the top Singapore REITs by dividend yield, potential upside and market cap.

Download the full report here. 

Check out Beansprout's guide to the best stock trading platforms in Singapore with the latest promotions to invest in Singapore REITS.

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