S-REIT index slumps 6% amidst Middle East energy shock fears

RHB urged a shift to ‘defensive large-cap’ REITs to survive market volatility.

The real estate investment trust (REIT) sector could see weaker demand from investors as rising inflation and uncertainty over interest rates make returns less attractive.

The shift in outlook is linked to the ongoing Middle East conflict, which is expected to disrupt energy supply and weigh on the global economic outlook, according to an RHB report.

Global bond yields have risen over the past three weeks, with Singapore’s 10-year yield also edging up, though more modestly by about 20 basis points in March.

Growth concerns are also expected to weigh on the sector, which was only beginning to recover following the recent sharp interest rate hike cycle, RHB said.

“We recommend investors stick to defensive large-cap Singapore-centric REITs to ride out the current market volatility,” it added.

The S-REIT index has fallen about 6% year-to-date, pushing average forward yields up to around 5.9%.

Despite this, fundamentals across the sector remain stable. Balance sheets are “largely healthy,” with manageable debt levels and improving operating performance.

The real estate investment market reached $10.97b in the fourth quarter of 2025, with residential properties accounting for 40.3% of the total at $4.42b, according to Savills’ report.

“The majority of S-REITs have hedged or put in place measures to manage utility cost pressures (post-COVID-19 experience), likely mitigating operational cost increases,” the bank said.

However, near-term performance is likely to be affected indirectly, as rising bond yields narrow yield spreads and make REITs less attractive.

The current outlook contrasts with earlier forecasts. In a prior report, DBS said Singapore REITs could enter a two-year earnings upgrade cycle from 2026 to 2027, supported by lower domestic interest rates.

RHB expects overall distribution per unit growth to average about 3% annually over the next three years, supported by rental increases and contributions from past acquisitions.

By sub-sector, the firm favours office and industrial REITs, followed by retail and hospitality, whilst remaining cautious on those with larger overseas exposure.