Are Commercial REITs In Singapore Going To Be In Trouble?

Real estate investment trusts can be useful income-generating stocks for investors as long as their properties are rented out at healthy rates. The italicized portion is key.

With a record supply of Grade-A office space coming online in Singapore this year, can commercial REITs here maintain their distribution for the next few years?

In Singapore’s stock market, there are a number of real estate investment trusts that have exposure to the Singapore office market and they include Frasers Commercial Trust (SGX: ND8U)OUE Commercial REIT (SGX: TS0U)Keppel REIT (SGX: K71U), and CapitaLand Commercial Trust (SGX: C61U).

According to data from Savills Research and Consultancy, rental rates for Grade-A office space in the Central Business District (CBD) of Singapore had declined in the fourth-quarter of 2015 compared to both the previous quarter and a year ago. In fact, rents at the Marina Bay precinct, which contains the most modern Grade-A offices, had experienced an 11.8% year-on-year decline.

Yet, many commercial REITs in Singapore’s stock market had generated higher distributions per unit in 2015. Some, such as Keppel REIT, had been able to achieve growth by investing in Australia. Others, such as CapitaLand Commercial Trust, saw their properties turn in a resilient performance; CapitaLand Commercial Trust achieved a 3.4% increase in its average rental rate.

But, with a slowdown in growth for the global economy and an aforementioned glut in office space supply in Singapore, it may lead to lower demand for office space here and thus pressure commercial REITs with exposure to the local office market.

How are the commercial REITs planning to deal with this risk? We would have to see in the coming quarters.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.