S-REIT appeal builds up

SINGAPORE real estate investment trusts (S-REITs) are set to remain a preferred income play as low domestic interest rates, resilient cash flows and improving operating fundamentals continue to support the sector despite heightened geopolitical uncertainty and ongoing market volatility.

Investors seeking defensive exposure are likely to find value in selected large-cap trusts that combine attractive yields with identifiable growth catalysts.

According to UOB Kay Hian (UOBKH) Research, the outlook for the S-REIT sector remains constructive, prompting the brokerage to maintain its “overweight” stance.

The research house recommends investors to buy blue-chip S-REITs with attractive yields and positive catalysts, naming CapitaLand Integrated Commercial Trust (CICT), Frasers Logistics & Commercial Trust (FLT), NTT DC REIT (NTTDCR) and UOB AIM Industrial Building REIT (UIB-REIT) as its top picks.

A key pillar of the positive outlook is the expectation that domestic borrowing costs will stay subdued.

UOBKH Research notes that Singapore continues to attract capital seeking refuge from global instability.

“Singapore’s domestic stability and resilience attract liquidity fleeing overseas instability and fragility, helping keep domestic interest rates at the current low levels,” the brokerage says.

The three-month compounded Singapore overnight rate average (SORA) fell by 64 basis points to 3.07% in 2024 and declined a further 188 basis points to 1.19% in 2025.

Against this backdrop, the sector’s yield spread stands at about 3.8%, close to 0.9 standard deviations above its long-term average.

The brokerage believes S-REITs continue to offer dependable income streams thanks to long lease tenures ranging from three to 10 years.

It argues that these characteristics make the asset class particularly attractive during periods of economic and geopolitical uncertainty.

“S-REITs have stable cash flows due to the long tenure of their leases, which range from three to 10 years,” UOBKH Research says, adding that they “provide income stability despite the highly uncertain geopolitical situation”.

Improving fundamentals

Recent earnings releases also point to improving sector fundamentals.

Among the 17 large-cap trusts under UOBKH Research’s coverage, results from 11 meet expectations, while Frasers Centrepoint Trust (FCT), Keppel DC REIT (KDC-REIT), FLT and Suntec Real Estate Investment Trust (SUN) outperform forecasts.

In contrast, Keppel REIT (K-REIT) and Mapletree Pan Asia Commercial Trust (MPACT) fall short of expectations.

Retail landlords are showing encouraging momentum as tenant sales growth strengthen and rental reversions improve.

FCT records a positive rental reversion of 6.5% in the first half of financial year 2026, while portfolio occupancy rises to 99.8% in the second quarter.

Northpoint City remains a major contributor to earnings with net property income (NPI) of S$49.5mil, accounting for 31% of group NPI.

At Causeway Point, occupancy rebounds to 100% after securing new cinema operators to replace departing tenants, helping NPI rise 1.7% year-on-year to S$36.1mil.

Lendlease Global Commercial REIT (L-REIT) also reports stronger retail performance, with rental reversion accelerating to 12.2% in the third quarter of financial year 2026. Tenant sales growth improves to 2.5% year-on-year, while efforts to reduce reliance on perpetual securities contribute to an improvement in its interest coverage ratio.

Within the office segment, limited new supply continues to support rental growth.

K-REIT benefits from a larger stake in Marina Bay Financial Centre Tower 3, with joint-venture income rising 37.6% year-on-year. Newly acquired Top Ryde City Shopping Centre in Australia also contributes meaningfully to earnings.

SUN delivers one of the strongest performances, with distribution per unit climbing 23.9% year-on-year in the first quarter.

The trust benefits from stronger contributions from its joint ventures and sustained momentum at Suntec City Mall, where rental reversion reaches 19% and occupancy remains high at 99%.

Diversified commercial trusts are also making progress.

CICT posts a 7.9% increase in NPI as lower financing costs and stronger office contributions support earnings. Retail occupancy remains steady at 97.8%, while tenant sales continue to benefit from tourism growth and promotional activities.

MPACT, meanwhile, is showing early signs of recovery at Hong Kong’s Festival Walk. Tenant sales rise 6% year-on-year during the fourth quarter of financial year 2026, supported by stronger luxury spending.

Management is also repositioning space within the mall to create a new food-and-beverage and lifestyle cluster.

Mixed results

Logistics assets continue to deliver mixed results across regions.

UOBKH Research observes that “Australia thrived but China languished”, highlighting strong performance from FLT’s Australian, European and UK portfolios, all of which maintain full occupancy. Rental reversions across Australia, Europe and Singapore reach 23.2%.

Conditions remain more challenging in China, where Mapletree Logistics Trust (MLT) faces elevated vacancies in eastern cities and tenants increasingly prefer short-term lease renewals. Nevertheless, negative rental reversions in the Chinese market have moderated.

Data centre trusts remain among the strongest performers. KDC-REIT records 19% NPI growth following contributions from Tokyo Data Centre 3, while an exceptional rental reversion of 51% reflects successful lease renewals.

NTTDCR also reports robust operating metrics, including a positive rental reversion of 13.7%, rising occupancy and a portfolio valuation increase of US$170mil.

In the industrial space, UIB-REIT continues to improve occupancy through active leasing efforts.

At 26 Tai Seng Street in Singapore, occupancy jumps by 15.1 percentage points to 96.7% after securing a globally recognised fast-food operator. Leasing momentum is also evident in Japan, where the Toyo MK Fuso Building achieves full occupancy and negotiations continue for additional space at UIB Konan Phase 2 in Greater Osaka.

With interest rates expected to remain low and operating fundamentals strengthening across several property segments, UOBKH Research sees selective blue-chip S-REITs as well positioned to weather market volatility while continuing to provide resilient income returns.