What happened?

Following the US Federal Reserve interest rate cut in September, the 10-year Singapore government bond yield fell to a low of about 2.40%. 

However, it has since bounced to 2.90% as of 7 November 2024, driven by stronger than expected US economic data and moderation in rate cut projections. 

The election of Donald Trump as the next US President has led to a further bounce in government bond yields, with expectations that Trump’s proposed policies may lead to greater inflationary pressures. 

In the meantime, the fundamentals across various REIT sub-sectors remain mixed.

Rising office vacancy rates

The completion of IOI Central Boulevard Towers added 1.26 million sq ft of premium Grade-A office space in the CBD, which we believe is a key reason for the continued increase in office vacancy rates from 7.9% in 1Q24 to 10.3% in 3Q24. 

Amid heightened net supply, office rents continue to be muted, with the URA office rental index down 0.5% QoQ. 

This was also reflected in a continued moderation in rent reversions at Suntec REIT’s One Raffles Quay and MBFC Towers 1&2, with rent reversions of 6.8% in 3Q24 vs. 14.4% in 3Q23. 

Retail rents stabilising

While the URA retail rental index continues to be muted, rents rose 0.3% QoQ in 3Q24, with property consultancy CBRE estimating island-wide prime retail rents to be up 4.1% YoY in 3Q24 to reach S$26.95, led by Orchard Road prime retail rents at S$37.45, up 4.8% YoY. 

Over the last four quarters, retail vacancy rates outside the Central Area, and within the Central Area but Outside Orchard have remained largely steady, with Orchard vacancy rates declining meaningfully from close to 14% as at 1Q23 to 7.0% as at 3Q24, likely reflecting rising retailers’ confidence in a continued recovery in visitor arrivals into Singapore. 

In the first half of 2024, tourism receipts were up 19.6% YoY to S$14.9 bn, led by visitors from China.

Industrial rent growth slowest since 4Q21

While overall industrial rent growth remained positive at +0.3% QoQ, this represented the slowest rate of growth since 4Q21, with declines already seen across both business parks (-0.2% QoQ) and single-user factories (-0.3% QoQ). 

With an additional 1.6 mn sqm of industrial space expected to be completed in 2025, the highest annual supply since 2017 when 1.9 mn sqm of space was completed, against average annual demand of 0.5 mn sqm over the last three years, we expect pressures on industrial rents and vacancy rates to intensify in 2025.

What would Beansprout do?

We remain selective on Singapore REITs as we expect the distributions of REITs with weaker fundamentals to remain under pressure. 

In addition, the mixed performance across various sub-sectors, as well as elevated bond yields may present further headwinds. 

Our preference is for REITs with the ability to improve on distributions through active portfolio management, such as AIMS APAC REIT. 

Find the best Singapore REITs and compare their latest valuaton with our Singapore REITs Screener.

If you are interested to learn more about the outlook of Singapore REITs, join us for our upcoming free webinar on 26 November, where we will discuss what will drive the share prices of Singapore REITs in 2025. Register for free here. 

Join us at “SGX Discovery Series with Beansprout: Navigating the landscape of European S-REITs” on 19 November, where we’ll dive into the exciting prospects of investing in this dynamic sector. This event features exclusive insights from senior executives of leading European REITs, including Cromwell European REIT, Elite UK REIT, and IREIT Global. Register for free here. 

Download the full report here.

Related Links:

• AIMS APAC REIT – Asset repositioning gives it the edge
• Elite UK REIT – Room for positive asset repricing

Join the Beansprout Telegram group and Facebook group for the latest insights on Singapore stocks, REITs, bonds and ETFs. 

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An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

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