What 2025 holds for SREITs

An expert said SREITs will likely have a better year.

2025 is set to be a better year for Singapore-listed real estate investment trusts (SREITs), with the market anticipating three rate cuts by the US Federal Reserve.

If this plays out and interest rates in Singapore remain unchanged, SREITs should benefit from reduced borrowing costs.

CGS International said those with a greater proportion of floating-rate debt will benefit most as their interest payments decrease.

With lower funding costs and positive rental rates, SREITs are likely to resume a 2-3% growth in distribution per unit (DPU) in 2025, according to CGS International.

Sectors which have reported positive rental rates were industrial and retail.

GS International reported that rental reversions in Singapore were positive across S-REITs in 9M24.

In 2025, the expert anticipates high occupancies and the ongoing lease renewal cycle to help S-REITs achieve low single-digit rental reversions and manage cost challenges.

CGS International's top picks in the sector are Frasers Centrepoint Trust (FCT) and Lendlease Global Commercial REIT (LREIT).

"We continue to like FCT’s resilient portfolio of suburban malls. LREIT is a potential re-rating play if its asset recycling strategy is successfully executed," the expert said.

"Sector risks include weakening consumer sentiment that could lead to a slowdown in consumer spending, which could further dampen tenant sentiment and reversions," it added.

Industrial SREITs echoed the positive rental reversion trend, with continued high-single or low-double-digit positive reversions in the warehouse, hi-tech, and light industrial sectors in Singapore, although business park rents showed moderation quarter-on-quarter.

In 2025, CGS International projects rents will increase by 0%-3%, a more moderate growth than the full-year expectation for 2024. The expert attributes this to supply dynamics.

The industrial sector will experience a surge in new supply, with 1,648,000 sqm of space expected to come onstream, the highest since 2022. The majority of this new space will be in the warehouse (39%), single-user factory (29%), and multi-user factory (18%) segments.

The office sector is another area likely to be influenced by supply dynamics. CGS International said a slowdown in new supply will help support its rental outlook.

The expert expects rents in the office sector to increase by 0%-3% next year.

Meanwhile, the hospitality sector will also see some easing, particularly in revenue per available room (RevPAR) growth, falling between 0%-3%.

CGS International attributed the expected moderation to Singapore’s international visitor arrivals being likely to stay at 16 million to 17 million next year, with the average length of stay remaining flat year-on-year.

The expert, however, said that the Q1 2025 YoY RevPAR performance could be influenced by the high base effect from Q1 2024, driven by numerous major concerts and events.

CGS International's top picks for the sector are CapitaLand Ascott Trust (CLAS), CDL Hospitality Trusts (CDREIT), and Far East Hospitality Trust (FEHT),

"Among these, CLAS and CDREIT both have more diversified footprints to navigate the moderating momentum in the Singapore hotel market," CGS International said.