What Does the Future Hold for the Industrial REITs in Singapore?

It is insightful to read the earnings announcements and annual reports of businesses in the same sector to have an understanding of the outlook of firms in that sector.

On that note, I took a look at some of the latest quarterly results of some of the industrial real estate investment trusts (REITs) to appreciate what the future holds for these REITs.

Singapore’s largest capitalised REIT, Ascendas Real Estate Investment Trust (SGX: A17U), said on 27 July 2017 that Singapore’s industrial property market remained soft amid the intense competition for tenants. The new supply of around 1.4 million square metres of industrial space in the second half of 2017 will put pressure on rental rates and occupancy.

Cache Logistics Trust (SGX: K2LU), which owns 11 logistics warehouse properties in Singapore, gave its take:

“The Singapore industrial market continues to be weighed down by an oversupply of warehouse space. Although demand appears to be improving in select sectors such as e-commerce and life sciences, industrialists’ cautious outlook on the business environment continue to weigh down on the Singapore leasing market.”

Over at Mapletree Industrial Trust (SGX: ME8U), the REIT finds the business environment to be uncertain despite positive signs from the manufacturing sector in Singapore.

It also mentioned that the new supply of industrial space and movement of tenants are expected to exert pressure on rental and occupancy rates. Mapletree Industrial Trust’s portfolio comprises of 86 industrial properties located in Singapore.

ESR-REIT (SGX: J91U), formerly known as Cambridge Industrial Trust, is not disagreeing with its peers.

In its latest quarterly filing, it said that the overall industrial property market was soft despite improvement in the manufacturing sector. Global trade uncertainties, higher operating costs and increased supply coming on-stream continued to weigh down on occupancy rates, rental rates and prices of industrial space.

However, it added that it is “encouraging to note that new supply forecast is expected to fall off after 2017 amidst improving macroeconomic indicators”.

This can be seen diagrammatically from the chart below released by JTC Corporation, which overlooks the industrial real estate sector in Singapore:

Source: JTC Corporation Quarterly Market Report for 2Q2017

The decline in new supply from 2018 onwards might bring about the much-needed respite to the industrial REITs, after being hampered by falling rental and occupancy rates.

We have to check back again in the next few quarters to see if things have improved.

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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 contributor Sudhan P doesn’t own shares in any companies mentioned.