Things aren’t getting any better for Singapore’s REITs in 2016, says Fitch

Diversified headwinds await different sectors.

While the city-state’s real estate investment trusts are bombarded with seemingly complex risks of all kinds this year, their woes actually only boil down to a simple disparity between supply and demand.

According to analysts from Fitch Ratings, hospitality REITs headline the struggle, as earnings will continue to be tough for the sector. However, visitor arrivals to Singapore are also expected to recover, providing some elbow room.

“Nevertheless growth in hotel room supply in Singapore will continue to outpace demand, leaving operating conditions challenging for the sector,” Fitch Ratings said.

Meanwhile, Fitch adds that a weak global economic climate would weigh on industrial REITs, as lower specification industrial assets, such as warehouses and multi-user factories, are expected to see weaker rental reversions than for higher-specification assets, such as business parks.

“The demand for business parks is stronger, and a significant part of the new supply is pre-leased,” they added.

Healthcare REITs remain the bright spot in the REIT market, with the overperformance expected to continue in 2016, backed by robust demand for their services and Asia’s ageing population.

“Healthcare SREITs' long-term lease structures with a high degree of rental protection and their high proportion of fixed-rate debt will also support earnings growth,” Fitch said.