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Opportunity Vs Risks: 4 REIT Sectors To Watch Out For In The Second Half Of 2022

Never put all your eggs in one basket 


Singapore’s inflation, which reached multi-year highs in 2021 at 2.3%, up from -0.2% in 2020, is expected to remain high in 2022 as well. The prolonged war between Ukraine and Russia has added to the woes with a surge in food and energy prices due to supply shortages.

Real estate is one asset class that performs well in a high inflation environment. While the purchase of physical properties requires large investment sums, REITS, on the other hand, offer a more palatable option to get exposure to the property market.

Given that most of the safe management measures were lifted from 26 April 2022, and coupled with MAS’s expectation of GDP growth to be between 3% and 5% this year, some sectors could perform better than others in the second half of 2022.

Here are four REIT sectors that we think could benefit more in the second half of 2022.

Hear the opinions of top REIT management executives and experts and their outlook at the REITS Symposium 2022, which is happening on 21 May 2022. Register for the free event here.

#1 Industrial REITs

Industrial REITS delivered the highest returns of 17.6% in 2021 across the different sectors (see below chart). The performance is largely due to their pivot towards new economy assets like modernised logistics spaces and data centres, which is a shift from their traditional association of warehouse facilities and industrial buildings. The growth of e-commerce businesses and third-party logistics providers has benefited industrial REITS as they serve the growing demand for logistics space in 2022.

Total Returns of S-REITS by Sub-Segments 

Source: FSMOne 

Amongst the industrial REITS, Ascendas REIT, which spent $2.1 billion on acquisitions last year, remains the largest owner of properties with new economy tenants. In Singapore, IT/data centres, biomedical, and engineering sector occupiers accounted for over 60% of new demand by gross rental income in FY2021.

The industrial sector is expected to see a pick-up in supply to similar levels observed in 2013-17, though it could be contained to multi-user and single-user factory space.

That being said, the sector may face headwinds from a weakening global economy due to rising inflation and higher interest rates, which may affect rent reversions in the second half of 2022.

Read Also: REITs Report Card 2022: How Singapore REITs Performed in 1st Quarter 2022

#2 Office REITs

Singapore’s central business district (CBD) grade A office rent in Q1 2022 grew for the third consecutive quarter to $10.46 psf/month after bottoming out at $9.79 psf/month in Q1 2021. Furthermore, the Marina Bay precinct, which has more new and good-quality office developments, also saw the sharpest quarter-on-quarter rent growth of 3.2% in the first quarter of 2022.

These are some signs that the office market could be recovering and is a sector to watch out for in the second half of 2022.

Monthly Gross Effective Rents for Grade A Office Space 
Source: JLL 

While Singapore’s status as a technology hub has attracted many major tech firms to set up their regional bases even during the pandemic period, there has been a broadening demand for office space from other businesses, including the asset and wealth management sectors.

The announcement of all workers being allowed to return to the office following the lifting of the work from home mandate is a boost for the office sector. Businesses will require more space to house their returning employees and will be encouraged to expand amid recovering global and Singapore economies.

JLL expects the office market to benefit from the recovery momentum and maintains its forecast for 2022 CBD Grade A rent to grow by at least 8%, or double the 4.3% recorded in 2021.

While sentiments are improving, it is possible that businesses could re-assess their space requirements and work arrangements. More firms may switch to a flexi work arrangement, thus needing smaller office spaces. The other issue is the rising interest rate, which may delay the expansion plans of businesses both locally and globally.

 #3 Retail REITs

The retail sector was among the few beneficiaries from the relaxation of the covid-19 restrictions in April 2022 as we transited to an endemic living with the coronavirus. Without the previous limitations on group sizes, throngs of people are now back in shopping malls, which could have a positive impact on the Retail sector in the second half of 2022.

Tenant sales in retail malls have also improved in the last earnings quarter, ahead of the increased shopper traffic from the relaxation of the safe management measures. Furthermore, with improving consumer sentiments and potentially front-loading of expenditure ahead of the impending increased GST in 2023, we could see a lift in tenant sales, which may bring about positive rent reversions in the second half of 2022.

Nevertheless, uncertainties still remain due to the spread of the coronavirus as government policies may change, especially in China, where REIT manager, BHG Retail REIT, operates. Additionally, a high interest rate and inflation environment may also curb retail spending, which could affect the Retail sector negatively.

Read Also: Guide To Understanding & Analysing REITs in Singapore

#4 Hospitality REITs

The hospitality sector was amongst the hardest hit during the pandemic period as tourism virtually came to a standstill. However, with the reopening of the borders for fully vaccinated travellers without a pre-departure test required (in Singapore) from 26 April 2022, it provides an optimistic outlook for the sector in the second half of 2022.

The visitor numbers in Singapore are expected to increase to at least 50% of pre-COVID passenger levels by this year, as mentioned by Prime Minister Lee in his 2022 May Day Rally. Hospitality REITS such as Ascott Residence Trust and CDL Hospitality Trusts reported double digit-growth in their revenue per available room (RevPAR) for the latest Q1 2022 earnings. The higher numbers were attributed to the growth in average daily rates (ADR) and occupancy rates.

While these trusts were optimistic about their prospects for 2022, global events such as an increasing number of covid-19 cases in China and a possible recession may slow the arrival of tourists in Singapore. Furthermore, analysts are expecting that international travel will only return to 2019 levels in 2024 or later, as per the World Tourism Organisation’s forecasts.This could serve to temper an overly optimistic expectation for the sector.

Read Also: [2022 Edition] Complete Guide To Start Your REITs Investing Journey In Singapore

How Should REIT Investors Position Themselves In Second Half Of 2022

As the old adage in investing goes, you should never put all your eggs in one basket. Any unexpected or sudden change in market dynamics could have a material impact on a concentrated portfolio. Therefore, we should look to diversify into the different sub-segments for a broad exposure to the REITS market.

If you are unsure about the outlook of the individual REITS in these sectors, you could use platforms like the REITS Symposium 2022 to hear directly from the top management of over 14 S-REITS, such as Ascendas REITs, Capitaland Integrated Commercial Trust and many more.

The REITS Symposium 2022, which is jointly organised by InvestingNote, ShareInvestor and REITAS, will be held on 21 May 2022 as a hybrid event. It will take place physically at Suntec Exhibition Hall and can be viewed online from the comfort of your home.

Register for the REITS symposium 2022 for free, here.

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