Broker: OCBC Investment Research
Date of Report: 29 August 2025

Singapore REITs 2025 Outlook: Poised for Growth Amid Interest Rate Shifts and Sectoral Divergences

Introduction: S-REITs at a Critical Turning Point

Singapore Real Estate Investment Trusts (S-REITs) are approaching a pivotal moment. While global equities have rallied, S-REITs continue to lag behind the broader Singapore market. Soft 2Q25 results reflect ongoing challenges, but the sector is forecasted to experience a notable turnaround in the next financial year, with average distribution per unit (DPU) growth expected at 4.0%. Valuations remain attractive, presenting investors with both risks and significant opportunities.

Market Performance: S-REITs Still Playing Catch-Up

Despite recent rebounds, S-REITs have underperformed major indices:

• FTSE ST All-Share REITs Index (FSTREI): 11.7% YTD
• Straits Times Index (STI): 16.6% YTD
• MSCI Singapore Index: 23.3% YTD

This lag is partly due to persistent inflation concerns and uncertainty over the US Federal Reserve’s policy path. However, dovish signals from the Fed have improved sentiment, and any rate cuts could catalyze renewed interest in yield-sensitive S-REITs.

Institutional Fund Flows: Outflows Persist, Outlook Improving

Institutional investors have been net sellers of S-REITs in 2025, with SGD834.7 million in net outflows year-to-date. Notably, there were seven consecutive weeks of net selling from early July to mid-August. However, expectations of a more benign interest rate environment and a forecasted inflection in DPU growth could reverse these trends.

Financial Performance: 2Q25 Results and DPU Trends

Recent earnings have been mixed. Among 16 S-REITs reporting DPU data:

• 8 met expectations
• 3 beat/slightly beat expectations
• 4 missed/slightly missed expectations

Nine S-REITs saw YoY DPU declines, one was flat, and six achieved positive growth. Keppel DC REIT (+12.8%) and CapitaLand India Trust (+9.1%) led gains, while CapitaLand China Trust (-17.3%) and Mapletree Logistics Trust (-12.4%) posted the largest drops. The average DPU for the coverage universe fell 1.2%, with the median at -0.7%.

Key DPU Growth Forecasts

Projections for the S-REITs universe:

• FY1 average DPU growth: -0.9% (median: +0.1%)
• FY2 average DPU growth: +4.0% (median: +3.0%)

These are premised on no global recession. OCBC’s forecasts are slightly above consensus for both FY1 and FY2.

Operational Performance by Sub-Sector

Retail REITs: Mixed Results, Suburban Malls Outperform

Singapore assets generally performed well, with strong rental reversions and high occupancy, while China and Hong Kong retail properties struggled. Suburban-focused REITs like Frasers Centrepoint Trust (FCT) bucked the trend with resilient metrics.

Key observations:

• Singapore retail assets: Strong rental growth, high occupancy, though sales growth lagged shopper traffic in most cases.
• China/Hong Kong: Negative rental reversions, softening demand, declining occupancy.
• Island-wide retail vacancy: Rose to 7.1%, mainly due to Central Region weakness; rents, however, rebounded 0.9% QoQ.

Industrial REITs: Robust, Except in China

Most industrial and logistics REITs reported positive rental reversions and high occupancies, except for portfolios with significant China exposure.

Additional highlights:

• Frasers Logistics & Commercial Trust posted the highest rental uplift due to a major lease renewal in Australia.
• KDCREIT’s data centre portfolio saw ~51% rental reversion in 1H25, with some assets still under-rented.
• Singapore’s industrial rents have risen for 19 straight quarters; Australia’s logistics markets showed moderate growth.
• China industrial rents are under pressure but expected to stabilize by end-FY26.

Office REITs: Core CBD Markets Strengthen

Singapore’s Grade A CBD office market saw two consecutive quarters of rental growth, supported by rising occupancy (now 94.7%). There is an evident flight to quality, with landmark buildings ramping up occupancy.

Key points:

• Singapore office assets: Positive rental reversions, high occupancy, but future rental growth expected to moderate.
• China office assets: Persistently negative double-digit rental reversions, with softness expected to continue for two years.

Hospitality REITs: Momentum Disappoints, Diversification Matters

Singapore’s hospitality sector saw slower-than-expected recovery, with 10 million tourist arrivals in the first seven months of 2025 (90% of 2019 levels). Chinese tourist numbers are at 86% of pre-pandemic levels. RevPAR rebounded in July (+3.8% YoY), but June was the lowest since January 2023.

Key observations:

• OUEREIT’s hospitality segment revenue fell 12.9% YoY, with Hilton Singapore RevPAR down 21%.
• CLAS saw RevPAU rise 3% YoY, cushioned by overseas markets.
• Starhill Global REIT’s Wisma Atria: Tenant sales down 4.1% YoY despite stable traffic.
• F1 Grand Prix shift to October is likely to depress 3Q25 hospitality REIT results.

Hospitality is the least preferred sub-sector, with quality, diversified portfolios most attractive for risk-aware investors.

Healthcare REITs: Resiliency and Defensive Growth

Parkway Life REIT (PLIFE) delivered DPU growth of 1.5% YoY, aided by contributions from new nursing homes and FX hedges. Tax exemptions on French income could provide further upside in 2H25. First REIT (FIRT) underperformed, with a 2Q25 DPU decline of 5.2% QoQ due to FX headwinds.
The healthcare sector remains favored for its defensive profile. PLIFE is highlighted for its growth levers, Singapore core focus, and healthy balance sheet.

Financial Health: Leverage, Hedging, and Borrowing Costs

S-REIT credit metrics remain stable:

• Average cost of debt: 3.57% (-3bps QoQ)
• Debt duration: 3.2 years
• Interest coverage ratio: 3.6x
• Aggregate leverage: 39.3%
• Fixed/hedged debt: 76.5% (+0.8ppt QoQ)

A 100bps reduction in borrowing cost would uplift FY2 DPU by an average of 3.1%.

Valuations: Still Attractive Despite Rebound

• iEdge S-REIT Index forward P/B: 0.89x (0.9 SD below 8Y average)
• Forward yield: 6.0% (slightly below 8Y average of 6.1%)
• 10Y Singapore government bond yield: 1.81%
• Yield spread: 421bps (0.6 SD above 8Y average, 2.1 SD above 3Y mean)

Sector Preferences and Top Stock Picks

OCBC’s preferred order by sub-sector: 1. Retail 2. Logistics & Industrial (especially data centres) 3. Office 4. Hospitality
The focus remains on high-quality S-REITs with robust DPU growth, strong sponsors, solid financial health, long WALE, and significant Singapore exposure.

Mapletree Logistics Trust is seen as a tactical trade despite headwinds, with negatives priced-in and a likely rental improvement in China. Parkway Life REIT is expected to benefit from investor focus on SMID cap names. CapitaLand India Trust and OUE REIT are highlighted as mid-cap beneficiaries.

Conclusion: S-REITs Offer Value and Growth Potential

Despite lingering challenges, S-REITs are set for a growth inflection in FY2, with sector valuations still attractive. Investors should focus on quality, well-sponsored REITs with resilient Singapore assets, healthy financials, and visible growth pipelines. The outlook is especially bright for retail, logistics/data centres, and select office and healthcare REITs, with interest rate trends a key watchpoint for the remainder of 2025.