S-REITs shine as defensive plays

THE outlook for Singapore real estate investment trusts (S-REITs) remains defensive, with resilient income streams offering investors some shelter as market uncertainty stays elevated.

Limited new property supply and a relatively favourable financing backdrop also give the sector room to deliver steady distributions and rental growth.

As such, UOB Kay Hian (UOBKH) Research maintains an “overweight” call on S-REITs, arguing that an influx of safe-

haven liquidity and low domestic interest rates is supporting both property values and borrowing costs.

“An influx of safe-haven liquidity and low domestic interest rates have led to a record volume of transactions for commercial properties, encompassing office and retail properties. Thus, the S-REIT sector is supported by firm asset valuation and a continued low cost of debt,” it explains.

The research house says investors should “buy defensive S-REITs in times of heightened uncertainties”, pointing to the sector’s relatively predictable cash flows.

Leases typically run for three to 10 years, providing a degree of earnings visibility even as geopolitical risks weigh on broader markets.

S-REITs have also largely lagged the recovery in the wider market.

While this has limited their upside during the market rebound, UOBKH Research sees the underperformance as a source of resilience during the current correction.

“They provide resilient dividend per unit yields, but are unlikely to lead the decline during the current market correction.” It adds: “S-REITs are laggards and, therefore, more resilient.”

Its preferred picks are CapitaLand Integrated Commercial Trust (CICT), with a target price of S$3.06; Frasers Logistics & Commercial Trust (FLT) at S$1.33; Mapletree Pan Asia Commercial Trust (MPACT) at S$1.75; NTT DC-REIT (NTTDCR) at US$1.31; and United Industrial REIT (UIB-REIT) at S$1.16.

Two key catalysts underpin the positive stance: a resilient Singapore economy that continues to attract safe-haven inflows while keeping domestic interest rates relatively low, and limited new supply across the retail, office and data centre segments.

Recent earnings also offer some support.

UOBKH Research says more S-REITs are exceeding expectations, with Keppel DC REIT (KDC-REIT) and Suntec REIT beating forecasts, although hospitality names CapitaLand Ascott Trust and Far East Hospitality Trust miss expectations.

Overall, 11 of the 15 large-cap S-REITs deliver results that meet expectations.

Retail holds up

Retail REITs continue to benefit from improving tenant sales, although portfolio occupancy is not uniformly rising, according to UOBKH Research.

Frasers Centrepoint Trust (FCT) sees committed occupancy ease 0.2 percentage point quarter-

on-quarter (q-o-q) to 99.6% as at June 2026.

Occupancy at Tampines Mall, Tiong Bahru Plaza and Century Square fell by an average 0.6 percentage point as the trust adjusts its tenant mix and works through transitional downtime.

Still, tenant sales rose 1.8% year-on-year (y-o-y) on a year-to-date basis.

FCT reduced aggregate leverage by 3.5 percentage points to 36.5% following the S$467mil disposal of White Sands.

Lendlease Global REIT, meanwhile, maintains a healthy 11.7% rental reversion in financial year ended June 30, 2026 (FY26).

Tenant sales growth also strengthened to 4% y-o-y in FY26, compared with 2.5% in the first nine months.

Offices retain pricing power

The office segment continues to benefit from constrained supply, helping landlords secure positive rental reversions, UOBKH Research points out.

Keppel REIT (K-REIT) achieved a 12.8% positive rental reversion in the first half of 2026 (1H26), compared with 10% in Singapore and more than 20% in Australia.

UOBKH Research expects its rental reversion to improve in 2027 as leases expiring then carry a lower average rent of S$11.49 per sq ft (psf) per month.

K-REIT has announced the S$91.4mil divestment of KR Ginza II in Tokyo and is exploring the sale of T Tower in Seoul, valued at S$269.7mil. Management plans to use the proceeds to reduce debt and pursue unit buybacks.

Suntec-REIT’s Suntec City Mall also performed strongly. Net property income (NPI) rose 13.6% y-o-y in 1H26, helped by higher occupancy and the completion of an asset enhancement initiative, while tenant sales increase 5%.

The REIT’s one-third stake in One Raffles Quay is seen as a potential divestment candidate.

Diversification pays

UOBKH Research notes that diversified commercial REITs are beginning to see signs of improvement across several markets.

CICT’s office portfolio records a 6.5% rental reversion in 1H26, with further positive growth expected because its average rent of S$11.03 psf per month remains below the prevailing Core Central Business District Grade A rent of S$12.50.

The trust also has several earnings drivers ahead, including a full year’s contribution from its additional 55% stake in CapitaSpring, income ramp-up from Galileo in Frankfurt and contribution from Paragon from July 2026.

Meanwhile, CICT is carrying out asset enhancement initiatives at Tampines Mall, Capital Tower and Plaza Singapura in phases to minimise disruption to income.

MPACT is seeing “green shoots” in Hong Kong and Japan.

VivoCity’s NPI grew 8.9% y-o-y in the first quarter of FY27 ended March 31, 2026 (1Q27), supported by a 13.5% positive rental reversion and 99.7% occupancy.

New information technology tenants are progressively moving into Mapletree Business City in 2Q27 and 3Q27.

Logistics splits by geography

The logistics story is more mixed, with Australia continuing to outperform while China remains weaker, UOBKH Research highlights.

It notes that FLT maintains near-full occupancy of 99.7% as at June 2026, comprising 99.8% in Australia and 100% in Europe. Rental reversion reached 11.9%, with Sydney at 8.8%, Melbourne at 29% and Germany at 3%.

Alexandra Technopark’s occupancy improved 11 percentage points y-o-y to 85.3%, with most new leases expected to commence by January 2027.

The picture is softer for Mapletree Logistics Trust, where positive rental reversion eased to 2.3% in 1Q27, excluding China.

Negative rental reversion in China moderated to 1.8%, although tenants there continue to favour shorter lease renewals.

Data centres offer growth

Meanwhile, data centre REITs retain some of the strongest operational momentum, UOBKH Research points out.

KDC-REIT’s NPI rose 15% y-o-y in 1H26, driven by a full six-month contribution from Tokyo Data Centre 3, contract renewals and rental escalations.

Portfolio occupancy fell 3.1 percentage points q-o-q to 92.5%, mainly because of a contract expiry at the small Cardiff Data Centre. Still, 95% of portfolio capacity based on power remains contracted.

NTTDCR also has room to grow. Occupancy by information technology load improved 0.8 percentage point q-o-q to 95.9%, driven by expansion leases at CA1, CA3 and SG1.

Including committed leases that have yet to commence, occupancy would reach 99.2%.

With US$261mil of debt headroom at 40% gearing, NTTDCR could use its balance-sheet capacity to acquire a 24MW hyperscale data centre in Frankfurt.

The diversified industrial segment also shows pockets of strength.

UIB-REIT’s Singapore occupancy improved 0.7 percentage point to 97%, while its Japan portfolio rose from 76.7% to 100%.

At UIB Konan Phase 2, Nippon Express expanded by 100,000 sq ft, while a global eCommerce tenant occupying 125,000 sq ft began its lease in June.

Overall, the combination of defensive income, firm valuations, manageable funding costs and limited new supply should underpin S-REITs’ resilience even as broader markets remain unsettled.

This puts the asset class in a relatively favourable position to weather near-term market volatility, while continuing to offer investors stable income and potential rental growth.