- After years of construction delays, we see the surge in supply completions as a key hurdle for industrial S-REITs in 2024. There is close to 1.9m sqm of new supply – a decade high - coming onstream, which is expected to constrain rental growth potential for the sector and drive a “flight to quality” trend amongst tenants.
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- Although rental reversions are expected to continue remaining positive, we believe assets with lower specifications in less ideal locations will start to experience declining occupancy rates and a longer vacancy period.
Industrial subsector expected to remain resilient in the face of volatility.
- Despite the ongoing uncertainties in global economies, including geopolitical tensions, slowing economic growth, persistent inflation, and sustained high interest rates, we maintain a positive view on the industrial S-REITs subsector.
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- While rising operating costs due to inflation have impacted earnings growth, we believe that most of this impact was recognised in FY23. Additionally, there are indications that inflation might decelerate, and landlords would be able to offset these through increased service charges and robust positive rental reversions, potentially enhancing profit margins.
- We foresee the potential for meaningful organic earnings growth throughout FY24.
Better alignment of buyer-seller expectations.
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Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Dale LAI DBS Group Research | Derek TAN DBS Research | https://www.dbs.com/insightsdirect/ 2023-12-11
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