Analysts stay upbeat as S-REITs stabilise after Q1 slump

Data centre REITs led gains at 5.74% on AI-driven cloud demand.

Singapore REITs (S-REITs) broadly stabilised in the second quarter, clawing back losses as local capital markets normalised following a severe wave of macro volatility triggered by a sharp geopolitical shock in late February.

“With the ceasefire now in place, REIT prices have largely stabilised in the second quarter. Data centre REITs emerged as the top performers, supported by robust demand from AI-driven cloud adoption and hyperscale expansion, which continued to drive strong leasing momentum and positive rental reversions,” Xavier Lee, senior equity analyst at Morningstar, said in a new report.

Other analysts have also said they remain optimistic on S-REITs as the sector showed resilience despite macro uncertainty and pressure from higher long-end bond yields.

The Morningstar report noted that heightened geopolitical risks triggered a broad selloff in S-REITs in the first quarter (Q1), with an overall decline in returns of 7.74%. Industrial and office posted the biggest decline at 11.61% and 9.49%, respectively.

In the quarter to May 31, Lee said S-REITs recovered after their Q1 slump, with data centres leading the total returns at 5.74%, followed by retail at 4.17%, industrial at 2.34%, and diversified at 0.76%. Office, healthcare, and lodging remained in the red.

In a separate analysis, CGS International noted that S-REITs trade at a 4.2% yield spread over Singapore’s 10-year bond yield, ”making them compelling on valuation after a period of underperformance.”

“We believe industrial REITs should still deliver organic DPU growth after the broad rental recovery, but increasingly through selective quality assets, such as data centres, modern logistics, and high-spec industrial space,” the report read.

CGS International also expects hospitality S-REITs to report flat-to-negative in the second quarter updates, reflecting softer tourist arrivals. Citing Singapore Tourism Board (STB) data, April’s international visitor arrivals reached 1.33 million, down 5.1% from last year.

Latest STB data showed that international visitor arrivals further declined 9.7% to 1.24 million in May, the lowest so far for 2026. Total visitor arrivals in the first five months reached 7 million, also down 1.2% from last year.

The government has announced at $740m investment over the next five years to develop the tourism sector, with a focus on expanding cruise, meetings, incentives, conferences, and exhibitions, and hospitality infrastructure.

Across subsectors, CGS International said private market transactions and asset price indices point to resilient demand for Singapore assets, likely supported by Singapore’s safe-haven status and the earlier decline in borrowing costs.

By contrast, the broader S-REIT sector is trading at around 0.81x P/BV, largely reflecting investor concerns over overseas leasing weakness and asset-specific risks.

“Resilient asset values could support divestments and capital recycling to unlock value, while tighter cap rates may make acquisitions in Singapore less DPU-accretive,” the report read.