Singapore REITs: Attractive Valuations Offset Higher-for-longer Rate Concerns
Ongoing rotation into growth and cyclical sectors. S-REITs declined 1.6% m/m in May, underperforming STI’s 2.5% m/m gain. The divergence reflects a continued improvement in investor risk appeti...
Chief Investment Office - Hong Kong version15 Jun 2026
  • Valuations remain attractive, with S-REITs trading at below 0.9x P/B and c.6.2% forward yields, a compelling spread of more than 400 bps over the 10Y SGS, with interest rate risks largely priced in
  • Earnings growth is returning, supported by refinancing savings and improving DPU prospects across the sector despite concerns of potential rate hikes returning
  • We continue to rank our sector preferences as Office > Industrial > Retail > Hospitality
  • Property fundamentals remain resilient, underpinned by healthy occupancy, positive rental reversions, and limited new supply across most asset classes
  • Capital recycling continues to create value, with REIT managers actively pursuing accretive acquisitions and divestments to enhance portfolio quality and earnings growth
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Ongoing rotation into growth and cyclical sectors. S-REITs declined 1.6% m/m in May, underperforming STI’s 2.5% m/m gain. The divergence reflects a continued improvement in investor risk appetite, with capital rotating towards cyclical and growth-oriented sectors at the expense of more defensive yield plays such as REITs.

Valuations remain attractive despite higher-for-longer rate concerns. In our view, much of the interest rate risk is already reflected in current valuations. The sector trades at below 0.9x P/B, close to 1SD below its long-term average, while forward yields of c.6.2% offer an attractive c.4.0% spread over the 10Y Singapore government bond yield. Importantly, prevailing SORA benchmarks remain below the sector's average borrowing cost of above 3.0%, providing continued scope for financing cost savings as legacy debt is refinanced.

While market expectations have shifted from rate cuts to the possibility of a rate hike by end-2026 amid elevated oil prices and firmer inflation expectations, we believe S-REITs are entering this phase from a much stronger position than in 2022. Unlike the previous tightening cycle, refinancing rates today remain below expiring borrowing costs, allowing contracted borrowing costs to continue trending lower. Based on the sector's refinancing profile, loans maturing in 2026-2027 carry borrowing costs that are more than 200 bps above current refinancing rates, providing a meaningful earnings tailwind over the next two years.

Return to positive earnings momentum is a potential re-rating catalyst. We maintain our forecast for sector-wide DPU growth of 3.0% - 3.4% p.a., marking the first sustained period of distribution growth in three years. We believe this return to earnings growth should support a stabilisation in share prices and potentially drive a broader recovery in valuations. We continue to rank our sector preferences as Office > Industrial > Retail > Hospitality. We remain most constructive on office sector given a multi-year supply drought and improving landlord pricing power. Industrial REITs, particularly those with exposure to logistics and data centres, continue to benefit from structural demand drivers such as digitalisation, cloud adoption, and AI.

Latest 1Q26 results reaffirm sector resilience; capital recycling remains a key earnings driver. Operating fundamentals remain healthy, supported by positive rental reversions, resilient leasing demand and favourable supply-demand dynamics. More than 90% of S-REITs are expected to deliver positive DPU growth over the next two years, reinforcing our constructive outlook on the sector. Meanwhile, strategic capital recycling continues to gain momentum as REIT managers focus on enhancing portfolio quality, strengthening balance sheets, and driving earnings growth. We expect disciplined capital recycling and accretive acquisitions to remain important differentiators for the sector.


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