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The returns of Singapore real estate investment trusts (S-REITs) are expected to improve over the next two years, according to a recent sector note from CGS-CIMB.
“We project distribution per unit (DPU) of S-REIT to grow 1.3 percent in 2019 and 2.0 percent in 2020, stronger than the 0.5 percent achieved in 2018,” said the report’s authors, Lock Mun Yee, Eing Kar Mei and Ervin Seow.
“We expect this to be achieved through a combination of positive rental growth as well as contributions from new acquisitions made in the previous year.”
The research house expects REITs focusing on the office sector to record the highest increase, followed by retail, hospitality and industrial properties.
In fact, data from DBS Bank shows that office REITs reported year-to-date gains of 10 percent, outperforming the 8.0 percent for the hospitality segment as well as 6.0 percent for both the industrial and retail sectors.
CGS-CIMB also forecasted that the office segment would experience the lowest new inventory until 2020, with new stock amounting to about 0.9 million to 1.3 million sq ft.
Similarly, the research house remains optimistic on the hotel industry amidst the dearth in new supply. Another reason is the higher revenue per available room (RevPAR) of hospitality trusts during the last quarter of 2018, indicating the absorption of the substantial influx of new rooms in the preceding year. On the industrial segment, the research house favours business parks as tenants affected by the tight office market might consider relocating to business parks.
Moreover, SGX statistics revealed that S-REITs were among the best-performing traded financial instruments in the local stock exchange in Q4 2018, as they recorded total returns of 2.3 percent and 0.3 percent in November and December respectively.
“Looking ahead, with market pricing in prospects of a ‘pause in US Fed hikes’ in 2019, we believe that the coast remains clear for S-REITs to deliver further outperformance,” said DBS analyst Derek Tan.
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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