Can investors find a safe haven in Singapore’s industrial REITs?

Players expect 3-15% of income to be renewed in H2.

Rental reversions appear to be the only blemish on an otherwise robust outlook for Singapore industrial REITs.

According to a report by DBS, rental reversions are expected to moderate in 2016 to 2018 on back of a soft operating outlook. Business parks are expected to buck this trend, however, as they continue to be the most resilient in comparison to other industrial sub-segments.

Fortunately for local industrial players, DBS noted that industrial REITs have been pro-active in engaging expiring leases early and can look forward to another 3-15% of income to be renewed in the latter half of the year.

Pressure to margins are also likely to ease, as the number of property conversions are likely to narrow from H2 onwards. DBS further noted that portfolio occupancies are expected to ease marginally, but should remain substantially full.

Further, CIMB noted in a report that the industrial sector is the best equipped to weather headwinds battering the REIT space.

“We project an average 1.1% yoy increase in 12-month DPU for industrials, +0.7% yoy for retail, -0.1% yoy for office and -10.1% yoy for hospitality. The mid-big industrial caps offered the best showing in 2QCY16,” CIMB stated.

“Looking ahead, we believe that the sector is best poised to navigate past the headwinds as it has been diversifying towards higher value-added businesses. We also see upside risks from an acquisition angle,” it added.