5 reasons why analysts are still upbeat on S-Reits despite interest rate pressure

[SINGAPORE] Real estate investment trusts (Reits) in Singapore have had a sluggish start to 2026, with the FTSE ST Reit Index, which tracks locally listed Reits, down about 6 per cent in the year to date.

This underperformance stands in stark contrast to the broader domestic market. The Straits Times Index (STI) gained 11 per cent over the same period, driven by fund flows rotating heavily into banks and growth stocks.

Singapore Reits (S-Reits) have faced severe selling pressure due to an extended hawkish outlook from the US Federal Reserve, which has kept global interest rates elevated for longer than expected, said DBS in a Jul 6 report. Additionally, geopolitical anxieties surrounding ongoing conflicts have fuelled investor caution.

Despite recent capital outflows, analysts believe the sector is hitting a cyclical bottom, supported by stable domestic real estate metrics. Therefore, they remain upbeat on the sector ahead of the July earnings season.

Here are five reasons why.

Easing domestic funding costs

While global central banks remain hawkish, the Singapore Overnight Rate Average (Sora) benchmark has eased significantly, sitting well below the S-Reit sector’s average borrowing costs. This gap provides substantial scope for positive debt repricing and cost savings as older legacy borrowings are refinanced, said DBS. 

Sora-pegged loans are already beginning to alleviate refinancing anxieties for Singapore-focused trusts. Analysts favour large-cap, Singapore-centric defensive picks to benefit from this domestic rate cushion. CapitaLand Integrated Commercial Trust (CICT) and Keppel DC Reit were flagged as Citi’s preferred picks in a note issued recently.

Rate risks fully priced in

The market’s sell-off indicated that macroeconomic headwinds of a “higher-for-longer” interest rate environment have already been thoroughly discounted by investors, noted DBS.

S-Reit valuations currently hover near one standard deviation below their long-term historical average. This creates a highly supportive valuation floor against further bond yield volatility, said analysts.

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Consequently, any near-term stabilisation in the macroeconomic outlook will serve as an immediate catalyst for a sector rerating, they added.

Mapletree Pan Asia Commercial Trust (MPACT) and CapitaLand Ascendas Reit (Clar) are among the valuation plays gaining traction among investors looking to capitalise on this mispricing, Citi said.

Inexpensive valuations

Analysts believe S-Reits are trading at a significantly cheaper rate. The sector currently has an “attractive” average price-to-book ratio of 0.9, lower than its historical long-term mean of 1.03, noted RHB.

At the same time, their underlying net asset values remain anchored by stable asset capitalisation rates in Singapore.

This steep discount relative to intrinsic value offers an ideal entry window for patient, long-term investors. Preferred value-driven additions with deep upside potential listed by RHB include industrial outperformer Aims Apac Reit and suburban retail giant Frasers Centrepoint Trust (FCT) .

Firm fundamentals

Operational metrics across major property segments remain highly resilient, analysts noted. Singapore’s projected 3 per cent gross domestic product growth continues to fuel steady commercial leasing demand, translating into positive rental reversions and robust occupancy levels.

Furthermore, net property income margins are structurally protected because energy and utility costs are heavily hedged or completely passed directly to tenants. Analysts prefer commercial space leaders with strong pipelines, with houses such as RHB highlighting Clar and Suntec Reit among their top preferred picks.

Attractive dividend yields

S-Reits continue to offer a premium income stream, with forward dividend yields averaging an attractive 6 to 6.2 per cent. More importantly, their average yield spread over the Singapore 10-year government bond has expanded to about 380 to 420 basis points, said analysts.

This spread is among the highest across global developed Reit markets, reinforcing their safe-haven appeal during volatile equity cycles. Yield-focused recommendations backed by strong balance sheets include RHB’s top pick of Stoneweg Europe Stapled Trust .

Looking ahead

As the earnings season kicks off next week, most S-Reits will be reporting their results for the first half of FY2026, while Reits sponsored by Mapletree and Frasers Property will be issuing their first-quarter and third-quarter results, respectively.

Analysts broadly expect S-Reits to post low-to-mid single-digit year-on-year distribution per unit (DPU) growth. Aggregate DPU is also set to rebound by about 4 per cent for the full financial year, according to RHB.

However, performance will be split between subsectors. Office and industrial Reits are positioned to deliver positive earnings surprises, fuelled by superior rental growth, tight asset supply and stable tenant demand, said RHB.

Conversely, the hospitality sector may experience slight negative surprises due to transient travel disruptions, surging airfares and cooling room-rate momentum.

Despite the bullish outlook, analysts flagged persistent headwinds. Creeping borrowing costs on unhedged foreign debt remain a prominent concern as overseas central banks turn more hawkish, they noted.

Additionally, the risk of a resurgence in cost-push or energy inflation, along with ongoing geopolitical instability, could squeeze operating margins if macroeconomic conditions deteriorate sharply.