Investors urged to increase exposure to office and industrial REITs

Better GDP growth prospects could boost said REIT sectors.

DBS Group Research analysts are pushing for investors to increase their cyclical exposure to the office and industrial sectors on the back of improved GDP growth expectations.

"Our strategy appears to be working as shown in the Ministry of Trade and Industry’s advanced estimates which reported that Singapore’s 1Q17 GDP grew by 2.5% y-o-y, above initial estimates. Since then, we have been seeing consensus raising estimates for Singapore GDP since the start of the year. In addition, latest posturing from our government implies that 2017 growth could come in at the higher end of GDP estimate of 1-3% and can also be read positively," DBS Group Research said.

DBS argued that the growth in manufacturing activities can spell encouraging read through for future demand for industrial space. The improvement in manufacturing and steady growth in the services-producing industries (up 1.5% YoY in 1Q17) should also help drive incremental demand for office space.

"Coupled with expectations of easing supply as highlighted in our previous note, we believe heading into 2018, there is improving prospects of a recovery in spot market rents for the high-spec industrial, business park and Grade A office properties. We believe this will trigger a further re-rating of the office and industrial REITs," said DBS Group Research.