Industrial real estate investment trusts (Reits) will likely benefit as the Government pushes for more higher-value-add businesses, said a new report yesterday.
The boost for Reits will be underpinned by the new economy, which is expected to boost demand for hi-specifications factories and business park space even as the current supply glut tapers off.
Maybank Kim Eng analyst Chua Su Tye noted in the report that the industrial sector - having digested the effects of policy measures similar to those in the residential market - is approaching the tail-end of a supply surge that has been in place since 2014.
"Supply surplus, which has plagued sector dynamics, should abate in 2018 as demand looks set to exceed new completions," said Mr Chua, adding that rents will likely bottom out this year and recover in the next, helped in part by growth in the manufacturing sector.
"Singapore's economic remodelling efforts should steer industrial demand needs towards hi-specs factories and business parks," he said, pointing to the Government's deliberate efforts to prioritise new economy industries - such as e-commerce, technology research and development, data centres - over traditional manufacturing.
"Within the sub-sectors, we believe business parks yield the strongest demand/supply balance, and should offer the best visibility," said Mr Chua, noting that demand for hi-specs factory and business park space has already outpaced overall industrial demand, with their contribution rising from 4.8 per cent in 2003 to 25.3 per cent in 2016, going by estimates.
On the whole, the industrial Reits are "well-cushioned" against rising interest rates, Mr Chua noted, as many have taken steps to improve their gearing and lengthen their debt maturity profiles.
"We see a sustained interest in the Reits, given their steady cashflow and DPU (distribution per unit) resilience in the absence of stronger assurance on Singapore's growth outlook," he said, adding that those with strong balance sheets and visible growth drivers will likely outperform their peers.
Maybank Kim Eng's top pick in the sector is Ascendas Reit, as it "commands the strongest fundamentals and is best leveraged to the Government's pro-growth economic programmes, given its portfolio is geared towards business parks and hi-specs factories".
It also has a "buy" call on Mapletree Industrial Trust, whose Singapore-focused industrial portfolio stands out for its resilience and clear growth attributes, and Viva Industrial Trust with its two large business parks.
Separately, an earlier report by RHB noted that recent economic data is pointing to steady growth in the manufacturing sector, which augurs well for industrial demand.
"While supply pressures remain as an overhang, a pick-up in demand ensures that rentals and capital values are unlikely to decline sharply," said RHB analyst Vijay Natarajan.
He noted that the business park segment is still the most favourable, on the back of very limited supply, while speculation regarding a potential consolidation among smaller industrial Reits may act as a re-rating catalyst for the sector. RHB's top picks in the sector are Ascendas Reit and Viva Industrial Trust.
