Chart of the Day: Capital values for prime-grade offices remain 10-15% below peak

But why are REITs still called 'safe havens'?

According to CIMB, from the listing of the first REIT (CapitaMall Trust) in Singapore in 2002, investors had treated REITs as dividend-growth stocks until the global financial crisis (GFC) struck in 2008. 

Since then, REITs have been viewed as safe havens and bond-like for their defensiveness and stable dividend payouts.

Here's more from CIMB:

However, as we reach a crossroads again, with bonds beginning to fade into the background in favour of cyclical stocks, we believe S-REITs could once again be viewed as dividend-growth stocks. Only this time, there are difficulties in growing, at least in Singapore.

Under normal economic conditions, when interest rates rise as a result of inflationary pressure due to greater economic growth, one would expect a rise in commercial capital value on the back of a stronger rental market.

However, asset price indices have been growing at a quicker pace than rental rate indices in recent years, resulting in a diversion divergence
of the spread between rentals and property price indices for the various sub-sectors from the historical means.

Capital values for prime-grade office properties remain 10-15% below their previous peak, against a backdrop of bottoming rents. We maintain our cap-rate assumptions of 4-4.5%, around 50-75bp higher than current market levels and implying 13-27% discounts to asset values.