As Singapore’s economy stabilizes post-pandemic, the industrial property market has started to cool after two years of rapid growth. While rents continue to rise, the pace has decelerated, with a modest 1% increase in Q2 2024—the slowest since early 2022. Yet, industrial real estate remains a reliable source of income, with major REITs displaying resilience despite rising costs and a challenging economic environment.
Here’s what investors should know:
Market Overview: Resilient but Slower Growth
In the second quarter of 2024, industrial rents climbed 6.6% year-on-year (YoY), while occupancy rates inched up 0.3% to 89%. Among the six industrial-focused Singapore REITs (S-REITs) with significant domestic exposure, earnings and business updates revealed a mixed performance.
Rising borrowing costs and higher operating expenses led to YoY declines in distributions per unit (DPU) across the board—except for Mapletree Industrial Trust (SGX: ME8U).
MIT Outperforms Despite Challenges
In Q1 FY2025, Mapletree Industrial Trust (MIT) reported a 1.2% increase in DPU, driven by robust contributions from its recently acquired data center in Osaka and positive lease renewals across its portfolio. MIT’s occupancy rate rose to 91.9%, with an impressive average rental uplift of 9.2% in its Singapore properties.
Positive Rental Reversions Across the Sector
Despite mixed financial results, all six industrial S-REITs recorded positive rental reversions, ranging from 2.6% to 16.8%. Sabana Industrial REIT (SGX: M1GU) led the pack with a 16.8% rental reversion, marking its 14th consecutive quarter of positive rental growth.
Solid Balance Sheets Offering Growth Flexibility
Financially, these REITs maintain strong balance sheets with an average leverage ratio of 37%, well below the regulatory limit of 50%. This leaves room for further growth through acquisitions and portfolio enhancements. For example, ESR-Logos REIT (SGX: J91U) capitalized on its financial strength with S$772.6 million in strategic acquisitions across Japan and Singapore, further diversifying its portfolio and aligning with its green and sustainable growth strategy.
Valuation: Discounts Present Value Opportunities
While these REITs remain financially stable, their share prices have dropped by an average of 6.1% this year due to a high-interest-rate environment and global uncertainties. Currently, they are trading at discounts to their typical price-to-book (P/B) ratios, offering potential opportunities for value-seeking investors. Mapletree Logistics Trust (SGX: M44U), ESR-Logos REIT, and Sabana Industrial REIT stand out as the most undervalued relative to their five-year historical averages.
Outlook: Stability with Potential Upside
The long-term outlook for Singapore’s industrial REITs remains promising. These assets continue to deliver stable returns, ranking just behind data-center REITs in total returns. Furthermore, a potential interest rate cut in September could uplift investor sentiment, driving renewed interest in this sector. For those seeking a blend of stability and growth, industrial REITs in Singapore offer compelling opportunities amid a shifting market landscape.
Disclaimer: ProsperUs Head of Content & Investment Lead Billy Toh doesn’t own shares of any companies mentioned.
