S-REITs With US Office Assets

S-REITs With US Office Assets Top Performers In January

USA – January 2023 was the best-performing month since 2020 for Singapore-listed real estate investments trusts (S-REITs), as the S-REITs index increased by 6.6 percent on a monthly basis compared to the 3.5 percent month-on-month gain recorded by the general Straits Times Index (STI), reported The Edge on Monday afternoon (6 February, SGT).

Among market segments, S-REITs that own office properties were the best performing as this sector collectively jumped by 18.2 percent on a monthly basis, followed by data centres (up 12.3 percent) and China-focused REITs (up 8.7 percent).

The US office market registered a V-shaped recovery, which DBS Group Research analysts Derek Tan and Geraldine Wong attributes to valuation trades after US office REIT lose nearly 40 percent of their value last year, trading at only 0.5 times P/B on average.

As a matter of fact, the best-performing stocks in January 2023 included Digital Core REIT, which rose 14.5 percent month-on-month. Another is Keppel Pacific Oak REIT (up 16.3 percent) and Prime US REIT (up 28.5 percent).

In spite of the stellar performance, real estate investments trusts are being impacted by the high interest rates. Even though S-REITs witnessed a solid recovery at the beginning of 2023, interest rates are forecasted to continue rising.

Nonetheless, better occupancy rates and positive rental reversions were seen across asset types thanks to China’s reopening and waning sentiments over a potential recession. The office and industrial segments continue to record robust positive rental reversions ranging between 5 percent and 10 percent, making them remain ahead in the real estate cycle.

In particular, Singapore’s office market continues to be aided by the low amount of incoming Grade A office stock, with actual occupancy rebounding to around 70 percent, exceeding that of other major office markets across the globe.

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