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DBS expects the gloomy state of the hotel sector to end next year due to the anticipated stronger demand and a moderation in excess supply, reported the Singapore Business Review.
The bank said the two-year downturn would come to a close as 2018 is a biannual conference year so there will more visitors coming to Singapore.
The supply of hotels is also forecasted to edge up by only one percent compared to the five to six percent growth recorded in the past two years.
Moreover, hotel owners here are becoming more upbeat as the city-state approaches its cyclical low in the near-term.
“Given already depressed valuations and relative illiquidity of the sector, we recommend investors to be early, rather than wait for evidence of a turnaround in 2018,” noted DBS.
Meanwhile, the bank revealed that pre-leasing activities at new office buildings and demand for industrial space is anticipated to improve on the back of falling supply and brighter outlook for the Singapore economy.
“We remain confident of recovery in office rents by the end of 2017 or early 2018, which should act as a catalyst to help close the circa 20 percent discount to book values for the office sector,” DBS explained.
For Singapore real estate investment trusts (S-REITs), rising interest rates could impact their performance. But the wide yield spread at 4.2 percent, which conforms with the historical average, provides adequate buffer.
Furthermore, S-REIT Index has generated total returns of 4.2 percent or 6.8 percent on an annualised basis, in spite of the two interest rate hikes in the past nine months, DBS added.
This article was edited by Denise Djong.
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