S’pore REITs may face headwinds

With recent weakness in manufacturing, experts said this could impact demand for factory space.

Coming at a time when the supply of industrial property is on the rise, they added that this could put pressure on some real estate investment trusts (REITs).

Within the next four years, more than 5 million square metres of factory space, and 1.6 million square metres of warehouse space, are expected to come onstream.

This is expected to exert pressure on rentals for certain types of industrial space.

Shane Hagan, CEO of Soilbuild Business Space REIT, said: “As far as more conventional industrial (space is concerned), we are seeing quite high supply for the next three years, and there is less pre-commitment for the conventional industrial space.

“So this is impacting slightly on rentals; (but) the new supply that’s coming up is mostly warehouse type space, so luckily for Soilbuild REIT, we don’t have properties in the sector so much, our properties are more in the high-tech production facility type space.”

Soilbuild Business Space REIT also manages business parks.

It said that this is an area where it is seeing a high level of pre-commitment from tenants.

This means that rentals could hold up, amid upcoming supply.

According to data from JTC, as of the first quarter of 2014, more than half a million square metres of business park space are expected to be completed in the coming years.

Still, some analysts said they prefer retail REITs over industrial REITs.

Jack Wang, partner at Lexico Advisory, said: “There are some retail REITs where it deals with shopping malls. I think those are great, because of the strong tenant mix, and I guess Singapore’s business environment is still pretty positive.

“But industrial REITs are a very different construct altogether, because you need to look into the demand from the manufacturing and industrial sector, which is on the softer side, given the weak global demand.”

So far this year, the REIT sector, as an investment class, have rebounded from last year’s losses and outperformed the benchmark STI.

It is up over 7 per cent year to date, compared to the STI’s 3-per cent rise, and some analysts said this means there may be limited upside potential for the sector going forward.

Source : Channel NewsAsia – 3 Jul 2014

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