‘Steepest discount’: Analysts bullish on office picks after S-Reits’ best run since 2019

[SINGAPORE] Rate cuts and solid property fundamentals propelled Singapore real estate investment trusts (S-Reits) to a 22.9 per cent gain in 2025, marking their strongest performance since 2019, said Morningstar on Thursday (Jan 8).

While the return on the Morningstar Singapore Reit Index trailed the broader Morningstar Asia Index, which returned 26.2 per cent, it was still the best showing since before the Covid-19 pandemic.

Yet, the rally appears to have left plenty of value on the table. Morningstar analyst Xavier Lee noted that S-Reits are still trading at a wide 17 per cent discount to book value, with the office sector specifically offering the “steepest discount” for investors.

Underpinning the year’s strong performance was a favourable shift in interest rates. Singapore 10-year bond yields moved directly inverse to S-Reits’ returns, dropping from about 2.8 per cent at the start of January 2025 to a low of 1.8 per cent in the third quarter before ending the year at 2.2 per cent.

Within Morningstar’s coverage, diversified Reits such as CapitaLand Integrated Commercial Trust (CICT), Suntec Reit and Mapletree Pan Asia Commercial Trust (MPACT) delivered the strongest performance in 2025.

In the nine months ended September 2025, S-Reits had an overall performance of 10.1 per cent, with office Reits outperforming at 15.3 per cent and hospitality Reits coming in weakest, at 3.4 per cent.

Lee added that Keppel Reit’s dilutive equity raise in December to acquire a third of Marina Bay Financial Centre Tower 3 weighed on its gains for the year.

The 10 largest S-Reits on the Morningstar index are Mapletree Logistics Trust , CapitaLand Ascendas Reit , CICT, Keppel DC Reit , Mapletree Industrial Trust (MIT), MPACT, Frasers Logistics & Commercial Trust (FLCT), Frasers Centrepoint Trust (FCT), Keppel Reit and Suntec Reit.

Benefiting from Singapore’s office, industrial markets

Morningstar and DBS were both bullish on Singapore’s office sector, preferring its trusts to other S-Reits.

“We believe the market expects robust Singapore office market performance, supported by limited office supply,” Lee said.

In the office sector, Morningstar forecast the office vacancy rate to tighten “sharply” from the current 5.1 per cent to 2.4 per cent by 2027, as the market absorbs new supply from projects such as IOI Central Boulevard and Keppel South Central.

“The resulting reduction in vacancy will set the stage for a strong acceleration in rental growth, significantly benefiting central business district office landlords,” Lee said.

Keppel Reit is expected to be a key beneficiary, thanks to its portfolio of “high-quality” office assets across Singapore, Australia, South Korea and Japan.

“Most of its assets are Grade-A office buildings located in central business districts, where they are highly coveted for their good-quality office space and proximity to businesses and key transport nodes,” Lee said.

“Further, the trust’s tenant base is one of the best in class, with government agencies and international banks in its register.”

He added that its portfolio should enable it to “weather any economic uncertainty and deliver good dividends for unitholders”, and said that the trust is undervalued at the current price.

In the industrial sector, leasing activity moderated in Q3 2025 as occupiers became cautious regarding potential US tariffs.

For business parks, Lee said vacancies have likely peaked and will improve gradually as new supply remains limited beyond 2025.

However, the broader sector continued to find support from the electronics industry, which is doing well due to strong demand for artificial intelligence (AI)-related servers.

MIT is also set to ride this wave; Morningstar noted that the trust’s 58 per cent exposure to data centres anchors it to the sector’s AI and cloud computing boom.

The outlook for the retail sector is similarly positive, with prime rents in both Orchard and suburban malls strengthening on the back of tight vacancy rates.

While visitor arrivals still lag pre-pandemic levels, Morningstar noted that average tourist spending has surpassed 2019 figures.

This growth is being driven by a structural shift in tourist behaviour towards “experiences” and luxury goods, which was notably boosted by the Formula 1 race in October 2025.

DBS’ picks

With the market pricing in up to two additional rate cuts in 2026, DBS Group Research on Tuesday noted that S-Reits specifically are entering a “two-year, rate cut-led earnings upcycle”.

While S-Reits and Australian Reits posted steady gains of 0.7 per cent and 0.9 per cent, respectively, in December, Thai Reits (TH-Reits) jumped 4.4 per cent month on month, drawing defensive inflows.

“TH-Reits, now in favour amid political uncertainty, are likely to remain on investors’ radar as markets expect additional rate cuts in the first quarter of 2026,” said DBS.

Conversely, Chinese Reits underperformed, with a 2.9 per cent decline due to regulatory scrutiny. However, DBS sees potential catalysts ahead in the form of escalated asset injections and new market entrants.

DBS indicated a preference for office and industrial Reits in Singapore, a preference for retail Reits in Hong Kong and China, and a preference for industrial and hotel Reits in Thailand.

It has buy calls on six Reits listed in Singapore: CICT, FCT, FLCT, Lendlease Global Commercial Reit, MIT and Suntec Reit.