S&P expects Singapore REITs to stay resilient this year

Office vacancies in CICT and OUE REIT are below market average.

S&P Global Ratings projects Singapore REITs under its coverage to maintain their debt profiles this year due to a strong retail outlook and their resilient office portfolios.

S&P expects the retail real estate sector to sustain its recovery on the back of a strong tourism rebound as well as Singapore’s modest economic growth estimated at 2.6% this year.

Its rated office-focused REITs, meanwhile, are “protected” from the rising supply and muted leasing demand for workspace this year as their portfolios are the main beneficiaries of the ongoing flight-to-quality trend.

The credit rating agency noted how CapitaLand Integrated Commercial Trust and OUE Commercial REIT recorded vacancy rates of 2% and 4.3% across their respective Singapore office portfolios last year, outperforming the islandwide vacancy of 10%.

“The REITs we currently rate are owners of such high-quality buildings. Tenants prefer buildings that meet green specifications and encompass flexible spaces. Landlords will have to invest more in older buildings to attract tenants,” S&P said in a commentary on Friday.

S&P painted a rosier outlook for retail REITs as it expects healthy leasing demand to remain the trend this year after the sector saw positive rental reversion last year.

Bolstered by the string of high-profile events in the next 12 months, the rating agency sees the tourism rebound to remain a major growth driver for retail-focused REITs after visitor arrivals in the Lion City hit 12.4 million in the first 11 months of 2023.

S&P forecasted the supply of retail space to stay below the historical average in the next three years – a trend that would support rental growth and keep vacancy rates low moving forward.

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