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August saw a lacklustre performance in Singapore real estate investment trusts (S-REITs), with the FTSE S-REIT Index falling by 2.6 percent year-to-date, according to a report from PhillipCapital.
The best-performing trust was Starhill Global REIT, which recorded a growth in unit prices of 5.1 percent month-to-date. On the other hand, OUE Commercial REIT was the worst performer as share prices declined 11.7 percent over the same period.
PhillipCapital also noted that the sector yield spread of 296 basis points (bps) over the benchmark 10-year Singapore Government Securities (SGS) remains near the -1 standard deviation as of 31 August. At present, the yield of the 10-year SGS is at 2.38 percent.
“Rising interest rates will be a headwind for S-REITs from a yield and interest expense perspective, but it does not necessarily lead to a bearish state as rental growth can be a mitigating tailwind,” said PhillipCapital.
In fact, the three-month Singapore Swap Offer Rate (SOR) nearly hit a 10-year high in August. Currently, the benchmark rate stands at 1.65 percent, and it is forecasted to increase in light of the expected interest rate hike by the US Federal Reserve later this month.
Recent notable market activity includes CapitaLand Mall Trust’s acquisition of a 70 percent stake in Westgate Mall for $806 million in the retail sector.
In the office segment, OUE Commercial REIT intends to buy the office component of OUE Downtown from its sponsor OUE Limited for $908 million.
HSBC Singapore also plans to relocate from CapitaLand Commercial Trust’s HSBC Building to Marina Bay Financial Centre Tower 2 from April 2020, after the one-year lease extension at its existing space was increased by 36 percent to S$11.54 psf per month.
Within the industrial sector, demand for data centres in Singapore remains strong, given Facebook’s commitment to construct a $1.4 billion data centre here. At 1.7 million sq ft, it surpasses Keppel DC REIT’s total gross floor area of local data centre space by six-fold.
In the hospitality segment, revenue per available room (RevPAR) rose 3.0 percent year-on-year in July to $203, which is more than the 2.5-year high. The healthy growth is attributed to higher average room rate and occupancy.
However, StocksBNB analyst Tara Wong maintained their neutral stance on the S-REIT sector due to falling tenant sales in the retail segment and weak net absorption of industrial space.
“A marked improvement in tenant sales would allow the retail S-REITs to improve occupancy levels at sustainable rental levels. However, tighter e-commerce competition and the oncoming retail supply glut would continue to weigh on retail rentals in the medium term. While industrial rents have been stabilising, occupancy still has some catching up to do in order to provide a meaningful catalyst for a sub-sector upgrade.”
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories, email romesh@propertyguru.com.sg
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