Experts predict continued Fed rate cuts to boost REITs until 2026

REITs have rally potential and could catch up with global peers due to attractive yield spreads.

With the US Federal Reserve implementing a 50-basis point rate cut in September, the real estate investment trust (REIT) market anticipates additional cuts for the remainder of the year, potentially extending into a broader cutting cycle until 2026, benefiting from lower borrowing costs, experts said.

Bruce Zhang, head of fixed income at CSOP Asset Management, noted that the gradual recovery of external-led manufacturing and trade-related services is expected to continue bolstering the Singaporean economy, and by extension, REITs. Additionally, easing inflation driven by cooling labour cost growth and contained input costs is lessening the pressure on REITs.

Victor Wong, UOB Asset Management’s Head of Sustainability, echoed this sentiment, emphasising that these conditions are particularly favourable for sustainability-focused real estate projects, providing a strong tailwind for green REITs, especially in Singapore and Australia.

Manish Bhargava, CEO of Straits Investment Management, expects a cumulative Fed rate cut of around 200 basis points by the end of 2025. Key drivers for REITs’ performance include expanding yield spreads, potential earnings growth from lower financing costs, and strengthened balance sheets, aided by stabilising asset values and ongoing deleveraging efforts.

Zhang also pointed out that many of the headwinds that previously hindered REITs, such as a strong Singapore dollar, high inflation, cost pressures, and monetary tightening, have now subsided. He believes REITs have further rally potential and could catch up with global counterparts due to their relatively attractive yield spreads.