All’s not lost for industrial REITs

Here’s how they can survive the ongoing downturn.

Industrial REITs have been under pressure in recent months, with rents steadily falling after consecutive years of growth. Although the decline is not expected to reverse any time soon, analysts note that there is a silver lining beneath the sector’s current troubles.

“The Singapore industrial real estate investment trust (REIT) sector will remain resilient in the current economic slowdown due to their robust financial profiles,” Fitch Ratings said in a new report.

Fitch noted that there is also more pressure on rents of lower-specification industrial properties because of weaker demand and higher supply, while higher-specification properties are less affected as demand remains stable.

Despite the downturn, the sector's loan-to-value ratio and interest coverage ratio remain robust, which should provide some comfort for industrial landlords. 

“The large proportion (80% at end-1H15) of the sector's debt with fixed rates, as well as the narrow mismatch between the duration of the sector's lease and debt contracts, also underpin the sector's resilience in a downturn,” the report noted.