Why S-REITs are the primary buffer against 3.2% inflation

Rental reversions of 23% at NTT DC REIT prove the sector's ability to outpace inflation, says UOBKH.

Singapore's real estate investment trust sector is being positioned as a defensive strategy, with its yield spread of 3.7% sitting 0.7 standard deviations above the long-term mean, according to UOB Kay Hian's April monthly update.

The FTSE ST Real Estate Investment Trust Index rose 3.2% in April, outperforming the Straits Times Index's 0.6% gain.

The yield on 10-year Singapore government bonds eased 18 basis points month-on-month to 2.11%. US core PCE inflation edged up 0.2 percentage points month-on-month to 3.2% year-on-year in March.

Active asset recycling supported the sector during the month. NTT DC REIT renewed its master services agreement with anchor tenant NTT Singapore for its SG1 data centre on a new three-year lease commencing 1 April, delivering a rental reversion of 23%, with rent rising from $385 per kilowatt to $474 per kilowatt and fixed annual escalations of 5%.

NTT Singapore retains 2.7MW of contracted capacity, representing approximately 31% of SG1's total capacity.

Digital Realty, sponsor of DCREIT, announced plans to invest $7b in Singapore, with more than $4.3b earmarked for new data centre developments.

The company has nearly doubled its local workforce to over 300 employees over the past three years, targeting 400 by 2030, and plans to launch an Innovation Lab in late 2026.

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