Is Everyone Wrong About the Market?

Amidst a “moderating global economy” and a “softer domestic and global outlook,” a common question is on every investor’s mind: In a world bracing for a slowdown, where can we find resilient growth?

While uncertainty seems to be the prevailing theme, a deep-dive report from DBS Group Research points to an unexpected bright spot, signaling a potentially significant market mispricing. The analysis suggests that Singapore’s Real Estate Investment Trusts (S-REITs) are quietly entering a powerful new cycle, positioning them for a major comeback. This post will break down the four most impactful takeaways that form this compelling investment thesis.

1. The Big Rebound: An “Earnings Upgrade Cycle” is Just Beginning

For investors, an “earnings upgrade cycle” is the financial equivalent of a series of positive surprises. It means the underlying business is getting healthier, profits are growing faster than expected, and ultimately, more cash is poised to flow into investors’ pockets.

According to the report, S-REITs are projected to enter a two-year sustained earnings upgrade cycle through 2026-2027. The key driver is a uniquely favorable interest rate environment. Even as the US Federal Reserve ends its rate-cut cycle, Singapore’s key interest rates (3M SORA) are anchoring at multi-year lows of around 1.2%-1.3%. The crucial reason for this divergence is Singapore’s “strong liquidity and SGD ‘safe haven status’,” which insulate its rates from global volatility. This makes it significantly cheaper for REITs to refinance their debt.

This powerful tailwind is expected to drive an average DPU (Distributions Per Unit) uplift of around 2.5%—a factor the market may not have fully priced in. The significance is clear: S-REITs are being propelled by powerful internal forces that could drive performance, even if the broader economy remains uncertain.

2. Not All Real Estate is Equal: A Clear Pecking Order for 2026

Crucially, the analysis doesn’t treat all S-REITs as a monolith. A clear pecking order emerges for 2026, providing a roadmap for investors to focus their capital on the most promising segments.

DBS’s sector preference ranking for 2026 is: Office > Industrial > Retail > Hospitality.

The rationale for the top picks is compelling:

• Office: Grade A office space holds the strongest upside, primarily due to a “multi-year supply drought” that is strengthening landlords’ pricing power.
• Industrial: Logistics facilities and data centres are seeing robust demand, fueled by structural trends in technology, biomedicine, and widespread digitalization.

Conversely, the report downgrades Retail, citing the tapering of government support like CDC/SG60 vouchers and potential “retail leakage” to Johor once the RTS opens in late 2026. For Hospitality, the analysis adds a key nuance, stating a preference for “diversified lodging and accommodation platforms over pure hotel plays for their more stable demand and resilient earnings.”

3. The Magic Number: Why a 0.9x Valuation is an “Attractive Re-Entry Point”

Valuation is where this comeback story becomes truly compelling. The S-REIT sector is currently trading at 0.9x Price to Book (P/B) with a forecasted FY26 yield of 5.7%.

The most powerful insight comes from historical data: the report’s back-testing reveals that entering the S-REIT market at or below a 0.9x P/B ratio has “historically seen positive returns.” This suggests the current valuation is not a sign of weakness, but a potentially strategic entry point.

Furthermore, let’s look at the yield spread. Think of it as the extra compensation you receive for taking on the risk of owning a REIT compared to a ‘risk-free’ government bond. The current implied spread is 3.7%, well above its long-term average. A wider-than-average spread suggests investors are being handsomely rewarded for this risk and that valuations have significant room to rise. The report quantifies this potential directly: a reversion to the mean spread of 3.2% “suggests a potential upside of c.15%.”

Valuations remain compelling; attractive re-entry points at 0.9x P/B, FY26F yield of 5.7%

4. Back in Business: The “Virtuous Cycle of Growth” is Reigniting

For the past few years, high interest rates made it difficult for S-REITs to grow by purchasing new properties. That chapter has slammed shut, and a new one focused on growth is beginning.

The current environment of lower interest rates and healthier S-REIT prices is making acquisitions “earnings-accretive” once again. The report calls this the reignition of the “virtuous cycle of accretive acquisitions.” As S-REITs make smart purchases that boost earnings, this leads to share price appreciation, which in turn makes it even easier to fund the next round of growth. This cycle is already in motion, with S-REITs having transacted close to SGD 7.0bn in acquisitions in 2025.

This isn’t just theoretical growth; the report identifies specific opportunities in the industrial, retail, and purpose-built student accommodation (PBSA) segments. The S-REIT growth story is no longer just about saving money on debt; it’s about actively expanding and building value.

Conclusion: A Quiet Comeback Story?

These are not four separate trends; they are four powerful currents converging at once. An earnings tailwind driven by a unique low-rate environment, clear sector leadership, a historically compelling entry point with a quantified 15% upside potential, and a reignited growth engine are creating a potential perfect storm for S-REITs.

As the market grapples with uncertainty, could the fundamentals quietly aligning for S-REITs make this the most important comeback story for investors to watch in 2026?

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