Investors eye S-REITs as stagflation fears trigger market correction

Retail investors bought over $300m in March.

Stagflation fears have driven a near-term correction in the market, presenting potential opportunities for investors to add to Singapore real estate investment trusts (S-REITs), according to DBS Research.

“The ongoing Middle East conflict has re-introduced stagflation potential risk into the global macro backdrop, primarily through a supply-driven energy shock,” the report said.

Elevated oil prices, fueled by concerns over disruptions to key transit routes such as the Strait of Hormuz, are increasing transportation, utility, and input costs across businesses. At the same time, heightened geopolitical uncertainty is weighing on business confidence and consumer demand, dampening growth expectations.

These factors have led the market to price in further interest rate hikes by the US Federal Reserve, contributing to an approximate 8% decline in rate-sensitive S-REITs year-to-date.

Higher energy costs and softer growth are compressing earnings, particularly for energy-intensive asset classes such as hospitality, retail, and data centres.

Despite these challenges, S-REITs are entering the cycle from a position of relative strength, supported by stabilised balance sheets, a high proportion of fixed or hedged debt, and favourable refinancing dynamics.

S‑REITs saw a weak start to 2026, with the iEdge S‑REIT Index posting a 6.4% total return decline in the first quarter. The index rose slightly in January but fell 7% in March amidst ongoing geopolitical tensions in the Middle East.

Retail investors increased activity during the market pullback and were net buyers with over $300m in inflows for March. The top S‑REITs attracting retail interest year-to-date include CapitaLand Ascendas REIT, Frasers Centrepoint Trust, Mapletree Industrial Trust, Keppel REIT, Lendlease Global Commercial REIT, ParkwayLife REIT, CapitaLand India Trust, ESR REIT, Keppel DC REIT, and Mapletree Logistics Trust.

Inflows were observed across industrial, commercial, logistics, and data centre sectors.

Institutional investors were net sellers, with $225m in outflows in March. Selective buying occurred, however, with Keppel DC REIT, Centurion Accommodation REIT, and OUE REIT seeing combined inflows of $45m.

Overall, S‑REITs recorded a 6.9% decline in total returns for March. Suntec REIT and Acrophyte Hospitality Trust were the only gainers. Suntec REIT’s rise coincided with the approval of its manager’s sale to Acrophyte Asset Management for $190m.

Acrophyte, owned by property tycoon Gordon Tang, acquired 100% of ESR Trust Management (Suntec) from ESR Asset Management.

Separately, Hongkong Land bought a 10.8% stake in Suntec REIT from ESR for $541m, increasing exposure to Singapore’s commercial real estate market.

From a macro perspective, investors remain cautious due to inflation, interest rate pressures, and geopolitical risks. Analysts highlight some positives: Phillip Securities notes potential FY26 distribution per unit growth supported by lower Sora-based interest expenses.

SGX said that S‑REITs remain attractively valued, with an average price-to-book ratio of 0.95 and FY26 forward yields of 5.7%, above historical averages. S‑REITs in the iEdge Singapore Next 50 Index trade at 0.9 price-to-book, offering forward yields of 6.3–6.5%.

On the cost front, whilst certain sectors face elevated utilities and operating expenses, a meaningful portion of costs has been hedged or can be passed through to tenants, DBS noted.

Sensitivity analysis suggests the net impact on distribution per unit (DPU) is likely contained within 1–2.7%. Refinancing spreads provide an estimated 200bps buffer, supporting relative stability in funding costs and DPU resilience. Modest DPU growth of around 3% is expected over FY26–27 even under a cautious macro scenario.