- Moderated but continued rate cuts and economic growth, along with reasonable valuation and flows to safe haven keep us POSITIVE on the S-REIT sector. Last year’s underperformance suggests lighter positioning. Distribution downside should subside from 2H25.
- Sub-sectors have ample pros and cons, implying scope for rotation as the year progresses. Our preference is for commercial, followed by industrial and hospitality.
Macro climate – Resilient growth, falling inflation
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- Globally, the Fed is expected to cut base rates by 75bps. The follow-through will result in further decline in 3-month SORA to 2.65% from 3.1%.
- FX outlook suggests appreciating JPY, a stable S$ and mixed regional currencies against the US$.
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- Upside from higher nominal growth, downside from any demand shocks.
Sub-sector views
- Distributions are likely to stabilize sequentially from 2H25 with growth (+3.1%) in 2026 for REITs under our coverage. However, we expect the focus will remain on recycling, stabilizing NAVs and de-gearing/capital return as base rates are unlikely to revert to earlier lows.
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