Singapore real estate investment trusts (S-REITs) are likely to suffer from modest economic growth and a greater supply of new commercial properties, said the ratings agency Moody’s.
According to Moody’s latest report, it expects the fundamental prospects for the sector to remain challenging in the next 12 months, despite the resilience of most S-REITs during the past six months.
This is attributed to the substantial supply of commercial properties which is due to come on stream over the next two years.
The report noted that for the next 12 months, Singapore will see about five-percent economic recovery, which is way under the eight percent average GDP growth attained from 2004 to 2007.
Moody’s said this will not be sufficient to absorb the escalating supply of commercial properties planned before 2008, when the country’s economic growth rate was at its peak.
As such, the robust supply in the commercial real estate sector within the next 12 to 18 months will continue to affect vacancy and rental rates, particularly the industrial and the office sectors.
Moody’s added that the downtown shopping malls will endure a near-term pressure on rental rates, while suburban malls will remain resilient.
However, on the positive side, Moody’s said that S-REITs should see high-quality assets, relatively stable operating incomes, and low development risk.
It has also noted that in 2009, many investment-grade S-REITs have raised new loans or equity, amounting to US$4 billion to refinance risk issues.
Since those S-REITs with strong sponsors have easier access to equity markets, they are likely to be in a better position to cope with the refinancing, it said.
However, the report also noted that the challenges of obtaining new funds from banks have weakened the credit profiles of smaller-rated S-REITs without strong sponsors.