Singapore REITs Sub-Sector - RHB Invest 2024-08-29: Outlook & Top Picks

• Continued from Singapore REITs - Sunny Days Ahead, Stay OVERWEIGHT: We recommend investors adopt a slightly more aggressive stance, with a balanced mix of high-quality industrial REITs for stable yields, and office REITs and selective overseas REITs to ride on the rebound from the turn in the interest rate cycle.
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Industrial REITs – maintain OVERWEIGHT

• Industrial demand remains strong – more than mitigating higher supply concerns. Based on Jurong Town Corp or JTC’s official data, Singapore’s industrial sector occupancy (2Q) overall rose 0.3ppts q-o-q to 89% with a 1% q-o-q rent growth (+7% y-o-y). Occupancy improvements were broad-based across all sectors, and quarterly rent growth was similarly seen in all segments except business parks, which saw a slight dip.
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• Broadly, most of the industrial S-REITs continue to post stronger operational metrics, with a firm outlook for most of the sector. The logistics segment in Singapore and overseas (except China) continues to be the bright spot, with healthy rental rate growth and continued demand for high-specification logistics facilities. However, with sharp rent growth seen in the last few years from an upward market shift, REIT managers are guiding for more moderation in rent growth ahead, with the gap between overall passing and market rents narrowing. Multi-user factory and high-tech industrial spaces have also been performing strongly amid a favourable demand-supply situation.
• The only sector that has been seeing some weakness of late has been the Singapore business park space, which has been impacted by higher supply, work-from-home or WFH trends, shifting of demand to lower cost locations, and rationalisation of technology demand. This has impacted business park occupancy, particularly at micro-markets such as Changi Business Park in Singapore’s east and Jurong in the west, where overall occupancies have been stubbornly low – in the 50-80% range. Recent discussions with REIT managers, however, point to some stabilisation and improvement in demand in these regions. Additionally, the authorities are now seen more open to changes of use and repurposing for some of these spaces, considering the evolving market conditions.
• Overall, we continue see the industrial sector as a defensive play, offering earnings stability and stable asset value in the current high interest rate environment. Among the sub-sectors, we like the logistics, data centres, and hi-tech segments, which continue to benefit from the shift in market dynamics brought about by supply chain shifts and the Government’s longer-term push to transform Singapore into a smart nation.

Industrial REIT Top Picks

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Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2024-08-29 SGinvestors.io

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