What’s behind Singapore REITs recent surge in Q3?

Singapore REITs currently trade at a 17% discount to book volume.

Lower interest rates are sparking a rally in Singapore real estate investment trusts (REITs), with Singapore office REITs outperforming in the quarter to September 2025, surging nearly 13%, supported by resilient occupancy rates and strong rental reversions in the first half of 2025, a report by Morningstar revealed.

Singapore REITs currently trade at a 17% discount to book volume, with office REITs trading at the steepest discount to book value.

Whilst valuation cap rates for some REITs are lower than the prime yields reported by CBRE, Morningstar said the risk of significant asset devaluation remains low. This is supported by high occupancy rates and strong rental reversions across the REITs under its coverage.

“Any downward pressure on valuations from cap rate expansion should be offset by the robust operating performance of the underlying assets,” the report said.

The flight-to-quality trend is bolstering demand for Grade A offices in Singapore, a positive for REITs with prime CBD assets. Whilst new completions such as IOI Central Boulevard and Keppel South Central are expected to keep rents broadly steady through 2025, vacancy is projected to fall from 5.3% to just 2% by 2027.

Morningstar said this tightening supply will drive a sharp acceleration in rental growth, positioning office-focused REITs to benefit from higher reversion and stronger valuations over the longer term.

Meanwhile, prime retail rents in Singapore are rising as vacancy rates decline, a trend analysts say supports retail REITs with prime Orchard Road and downtown exposure.

Cushman & Wakefield reported that food and beverage operators accounted for half of retail leasing demand in the first half of 2025, with lifestyle retailers also expanding.

Although outbound travel continues to weigh on domestic sales, the upcoming Formula 1 Grand Prix is expected to boost visitor arrivals and retail spending. With annual new supply projected at only 0.3 million square feet—well below the 10-year average—the report expects tight conditions to sustain rental growth, underpinning stable occupancy for retail-focused REITs.

On the the otherhad, the industrial REIT sector continues to benefit from healthy leasing activity despite macroeconomic uncertainty.

Cushman & Wakefield highlighted strong demand for new developments. Business park vacancy rates also declined in the second quarter, according to CBRE, driven by relocation demand and new setups at Geneo and Punggol Digital District.

Whilst overall vacancy remains elevated, Morningstar expects it has peaked and forecasts gradual improvement given the limited supply pipeline beyond 2025. The flight-to-quality trend has kept business park rents steady, but it also cautioned that high vacancies could weigh on rental growth over the next 18 months.

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