REITs pursue inorganic growth as cap rates remain tight

Resilient growth and safe-haven flows support the sector.

Singapore’s REIT sector is shifting its strategic emphasis toward inorganic growth and asset recycling, supported by tight cap rates and resilient economic momentum, according to a new report by Maybank.

“Despite normalising rent reversions and receding tailwinds from lower financing expenses, resilient economic growth and safe-haven flows continue to support the sector," the report said.

Maybank maintained a positive stance on the REIT sector, preferring domestic market themes and securities offering a blend of yield and growth at reasonable valuations.

Singapore’s 2026 GDP growth forecast has been revised upward to 3.6% from 2.8% at the start of the year, placing it at the higher end of the government’s 2%-4% forecast range, the report said.

Separately, earnings for domestic REIT portfolios are expected to remain stable this year despite moderating economic growth, according to a report by S&P Global Ratings. Limited new property supply is helping support steady performance in both the office and retail sectors.

S&P also noted that Singapore’s real GDP growth is projected to slow to 2.1% in 2026 from 3.3% in 2025.

In the office segment, rents and occupancy rates in prime central business district buildings are expected to continue improving, supported by limited new supply, tenant preference for high-quality assets and sustained foreign investment inflows.

For retail properties, suburban malls are likely to remain stable as tenants focus on essential spending. Downtown retail may see slower growth due to tourism trends and rising operating costs, although performance remains stronger than before the pandemic.

Core and headline inflation are also expected to rise to 1.7% and 1.6%, respectively, compared with earlier estimates of 1.3% and 1.4%.

In response, Maybank expects the Monetary Authority of Singapore to tighten policy in April by slightly steepening the Singapore dollar nominal effective exchange rate (S$NEER) appreciation bias, to moderate emerging inflationary pressures.

“Singapore’s political, policy and fiscal stability should provide a “certainty premium” in this unpredictable environment,” it noted.

With system deposits growing 5.2% year‑on‑year in January and the Singapore Overnight Rate Average (SORA) marginally down year‑to‑date, the bank affirmed its year‑end SORA forecast at 0.70%.

Against this backdrop, REITs reported approximately 1% year‑on‑year higher distributions per unit (DPU) in the latest reporting season.

Positive rent reversions, cost savings on financial expenses, and contributions from inorganic initiatives were key drivers of the uplift.

Whilst cost of debt is trending lower, guidance remains broadly unchanged from the previous quarter.

Maybank noted that REITs are increasingly focusing on inorganic expansion and recycling non-core or low-yield assets, whilst using development headroom in Singapore’s tight cap-rate environment.

After the recent pullback, the sector offers a 6% forward yield, representing a roughly 4% spread—on the wider side of its historical range.

Distribution estimates for the next two fiscal years have also been raised by 0.5%, with target prices lifted by 4% on average.