The REITsavvy 2025 Q1 Review: Performance of S-REITs

Singapore REITs (S-REITs) kicked off 2025 navigating a market still adjusting to the aftershocks of past volatility. Despite a more supportive interest rate environment and early signs of economic stabilization, the sector’s recovery remained uneven through the first quarter.

At the start of the year, sentiment toward S-REITs was cautiously optimistic. The U.S. Federal Reserve had delivered another 50 basis points of rate cuts between January and March, bringing the cumulative easing cycle to 150 basis points since late 2024. Expectations were high that lower financing costs would provide immediate relief to highly leveraged REITs and unlock valuation upside across the sector.

However, as Q1 unfolded, it became clear that rate cuts alone were not a panacea. The scars from two years of aggressive tightening — higher debt costs locked in during 2022–2023, and stubbornly cautious business sentiment — continued to drag on sector performance. Many REIT managers remained focused on balance sheet optimization rather than aggressive expansion or capital deployment, dampening growth expectations.

Further complicating the backdrop, the reintroduction of targeted tariffs between the U.S. and key trading partners rekindled global trade tensions. In response to new tariffs on strategic industries, markets were rattled by fears of supply chain disruptions and renewed cost pressures. This surge in uncertainty triggered a flight to safety in U.S. Treasuries, briefly pushing the U.S. 10-year yield lower in January. However, as the quarter progressed, persistent inflation concerns and fears of retaliatory trade measures reversed that trend, sending the 10-year yield climbing again toward 4.2% by late March.

For S-REITs, this whipsaw movement in global bond yields created additional volatility. Early-quarter optimism around falling financing costs faded as long-term borrowing rates edged higher again, putting pressure on REIT valuations and investor appetite for yield-sensitive sectors.

Performance across the S-REIT universe was highly bifurcated. A handful of retail and hospitality REITs, buoyed by a recovery in consumer spending and tourism flows across Asia-Pacific, posted strong returns. Notable examples included hospitality trusts with exposure to gateway cities like Singapore, Tokyo, and Sydney, where demand for travel rebounded sharply post-pandemic.

In contrast, office REITs continued to grapple with structural headwinds. Occupancy rates in key business hubs remained under pressure as hybrid work models entrenched themselves, and corporates reassessed their real estate footprints. Even prime-grade assets were not immune, with effective rents showing signs of plateauing after years of growth.

Industrial REITs delivered mixed results, heavily influenced by tenant profiles and geographic exposure. Logistics-focused assets in resilient markets like Australia and Japan fared better, while properties linked to manufacturing hubs faced softness amid slower-than-expected global trade recovery.

Meanwhile, currency movements added another layer of complexity. The Singapore Dollar strengthened modestly against key currencies such as the Australian Dollar and Japanese Yen, translating into earnings headwinds for REITs with offshore portfolios. Although most managers actively hedged their foreign income, the net impact still weighed slightly on reported distributions.

In total, sector-wide returns remained muted. While some names managed to claw back modest gains, the broader FTSE ST REIT Index ended Q1 marginally negative. Dividend yields across the sector remained attractive by historical standards — hovering around 6% to 7% — but valuation multiples compressed slightly as investors continued to demand greater risk premiums amid a volatile rate environment.

Through it all, portfolio quality and sponsor strength emerged as key differentiators. REITs with robust tenant bases, long weighted average lease expiries (WALEs), and conservative balance sheets demonstrated greater resilience amid market uncertainty. Investors increasingly gravitated toward these higher-quality names, reflecting a clear "flight to safety" dynamic within the sector.