Market expectations for rate changes have shifted to “−41 basis points in the US, +32 basis points in the EU and +3 basis points in the UK; compared with −60 basis points, −7 basis points, and −44 basis points a month earlier”, according to the report.
HSBC’s sensitivity analyses shown “Suntec REIT (SUN) and Keppel REIT (KREIT) are most exposed to Singapore rates, while CDL Hospitality Trusts (CDREIT) and Frasers Logistics & Commercial Trust (FLCT) are more sensitive to developed market rates”. “CapitaLand India Trust (CLINT), CapitaLand Integrated Commercial Trust (CICT) and FLCT carry the largest unhedged FX [foreign exchange] exposure. Utility costs are expected to have a limited impact, as most REITs have yet to reprice from already elevated levels”.
The shift marks a turning point for the sector, which had begun 2026 on a more optimistic footing, supported by lower interest rates and higher capital activity.
Office out, retail in
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HSBC has downgraded KREIT from “buy” to “hold,” citing a preference for REITs with a stronger domestic orientation. While maintaining ratings on other REITs, HSBC notes that “escalating Middle East tensions have altered the outlook for interest rates and FX, shifting market focus back toward balance sheet resilience and earnings visibility”.
HSBC also cut KREIT’s target price to $1.00 from $1.10, which implies a modest 8.7% upside from current levels. The downgrade reflects a more cautious outlook for the office segment, with leasing sentiment expected to be slower than expected. While physical supply and demand dynamics remain balanced for office, HSBC expects tenant bargaining power to increase amid a more uncertain growth outlook.
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In contrast, the research house continues to favour retail-focused landlords. CICT remains a “buy”, with a raised target price of $2.70 (from $2.65), implying 16.9% upside, supported by resilient domestic consumption and stable occupancy.
Similarly, Frasers Centrepoint Trust (FCT) retains its “buy” call with a target price of $2.65, offering 19.9% upside, underpinned by strong domestic consumption and an easing interest-rate environment in Singapore.
Rates and FX risk resurface
The report places particular emphasis on interest rate sensitivity. A 50-basis-point increase in borrowing costs could materially impact earnings, especially for REITs with higher floating-rate debt.
SUN and KREIT were identified as among the most exposed to Singapore rate movements, while CDREIT and FLCT are more sensitive to developed market rate shifts due to their overseas portfolios.
FX volatility is another key risk. REITs such as CICT and CLINT carry relatively higher unhedged exposure, leaving earnings more vulnerable to currency fluctuations.
Beyond rates and FX, HSBC highlights that Singapore assets remain exposed to higher energy prices via utility costs. “This can weigh on property operating expenses and margins. Energy tariffs (in the form of USEP prices) in Singapore have spiked leading up to the start of the Russia-Ukraine conflict before gradually moderating, a trend reflected in NPI margins as well,” notes the report.
The USEP or Uniform Singapore Energy Price is the half-hourly energy price in the Singapore Wholesale Electricity Market.
Nonetheless, most REITs have locked in utilities at relatively high rates compared to pre-2021 levels, meaning any further increase in electricity tariffs would have a less pronounced impact than before.
Earnings trimmed, momentum may slow
Reflecting the more uncertain environment, HSBC has trimmed its FY2026–FY2027 distribution per unit (DPU) forecasts by around 1% on average and raised cost of equity assumptions across its coverage.
Beyond KREIT, several target prices were also revised downward, including CapitaLand Ascendas REIT (CLAR) to $3.00 from $3.25, though it still offers 18.1% upside and retains a “buy” rating.
While capital-raising activity has remained relatively robust, HSBC cautions that transaction momentum could slow as investors grow more risk-averse.
“Management teams remain broadly acquisitive following the latest results seasons, supported by still-conducive interest rates and positive asset yields. So far, two S-REITs, namely CLINT and Lendlease Global Commercial REIT, [have] launched equity fund raisings to fund yield-accretive acquisitions,” reads the HSBC report.
Together with the issuance of perpetual securities, $2 billion of equity and equity-related capital has been raised year-to-date — a reflection of a more buoyant capital market. “Nevertheless, S-REIT investors remain extremely price sensitive,” says HSBC.
Investment-market activity continues to sustain after a strong 2025, notes HSBC. “More assets are being marketed, including One Raffles Place ($2.3 billion to $2.4 billion in asking) and Marina One ($5 billion to $6 billion in asking), which could keep transaction activity elevated. Nonetheless, with uncertainty revolving around the ongoing Middle East conflict, we believe this will likely dampen transaction activity as investors start to sit on the sidelines on capital deployment.”
Focus shifts to balance sheet resilience and earnings visibility
HSBC ultimately characterises the sector as returning to “basics”, with emphasis shifting towards balance sheet strength, earnings visibility and domestic resilience.
In this environment, REITs with strong Singapore exposure and defensive income streams — particularly retail — are expected to outperform, while office landlords and globally exposed names face increasing scrutiny as macro risks build.
Charts and Tables: Bloomberg, HSBC
