Why M&A won't be very easy for industrial REITs soon

Cap rates are at 6-6.5%.

According to CIMB, as a result of the heightened regulation of the industrial property market and compressed cap rates of 6-6.5% (from their long-term average of 6.5-7.5%), industrial REIT managers have been finding it more difficult to acquire yield-accretive properties.

In addition, the shortening of land tenures from 60 to 30 years and upfront land premiums have hit the profitability of BTS projects.

Here's more from CIMB:

For these reasons, we expect industrial REITs’ earnings growth to slow down.

Although Singapore’s MPI continues to grow, rental growth is expected to remain soft as a result of the relatively high supply of industrial space.

However, REITs should still be able to achieve positive rental reversions as most of their leases due in 2013 had been signed during the global financial crisis.

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