Over the past few years, Singapore REITs have faced difficulties due to rising interest rates, which have increased financing costs.
As loans were renewed at higher rates, more cash was allocated to interest payments, redirecting money away from unitholder distributions.
Meanwhile, deal activity slowed down as increased funding costs made fewer transactions economically viable.
Many REITs saw distributions per unit decline.
Unit prices followed.
For income investors, the sector lost its appeal as government bond yields climbed.
But the narrative may be shifting.
With interest rates starting to fall, Singapore REITs could be among the biggest beneficiaries as financing conditions improve.
Why REITs Struggled During the High-Rate Cycle
Since 2022, Singapore REITs have been fighting an uphill battle, and it wasn’t because their properties suddenly became bad assets.
The problem was simple and relentless: interest rates stayed higher for longer.
As loans were refinanced at much higher costs, more cash went to the banks and less flowed through to unitholders.
Distributions came under pressure, and growth plans were quietly put on hold.
You can see this clearly in names like Frasers Logistics & Commercial Trust (SGX: BUOU), or FLCT, a REIT that focuses on logistics and industrial properties.
As its average cost of debt rose to about 3.1%, distributions came under pressure.
Consequently, the REIT’s DPU for the fiscal year ending 30 September 2025 (FY2025) fell to S$0.0595, down 12.5% year on year.
This decline occurred despite otherwise solid operating performance.
Portfolio occupancy actually improved to 95.1% by end-FY2025, supported by strong logistics demand, although vacancies at Alexandra Technopark continued to weigh on income following a major tenant exit.
In short, FLCT’s experience shows how higher financing costs, rather than weak assets, were the main drag on REIT distributions during the high-rate cycle.
Even higher-quality industrial REITs were not immune.
Mapletree Logistics Trust (SGX: M44U), or MLT, held up better operationally than the headline numbers suggest, but the high-rate and strong-SGD backdrop still left a mark on distributions.
For the second quarter of the fiscal year ending 31 March 2026 (2Q FY25/26), MLT’s DPU edged up 0.2% quarter-on-quarter to S$0.01815, helped by lower borrowing costs where it weighted average borrowing cost eased to 2.6%, down from 2.7% the prior quarter.
Meanwhile, its portfolio remained resilient with a 96.1% occupancy.
That said, on a year-on-year basis, the quarter’s DPU was 10.5% lower compared to a year ago, as a weaker regional currency mix and the absence of prior-year divestment gains weighed on distributable income even as underlying leasing stayed steady.
The big picture is this: REITs didn’t struggle because their business models were broken.
They struggled because the macro environment was hostile.
Higher interest rates and attractive risk-free yields created a tough backdrop for the entire sector.
As those pressures ease, fundamentals such as balance-sheet strength, asset quality, and sponsor support are likely to matter much more again.
How Falling Rates Improve the Outlook for REITs
For commercial REITs like CapitaLand Integrated Commercial Trust (SGX: C38U), or CICT, and Mapletree Pan Asia Commercial Trust (SGX: N2IU), or MPACT, a lower-rate environment changes the picture in very practical ways.
These trusts were not struggling because their malls and offices stopped attracting tenants; they were dealing with higher interest bills that quietly ate into what could be paid out.
When those borrowing costs start to ease, the improvement shows up quickly in cash flow.
CICT is a good example of how this plays out.
Even during the high-rate cycle, it managed to grow DPU by 3.5% year-on-year to S$0.0562 in 2025’s first half (1H2025), supported by strong occupancy of 96.3% and a gearing ratio of 37.9%.
As rates fall, refinancing becomes cheaper and the same stream of distributions looks more attractive again.
That combination of stable cash flow plus lower financing costs gives CICT more room to sustain dividends and potentially unlock higher valuations.
MPACT stands to benefit in a slightly different way.
The trust’s committed occupancy down to 88.9%, even as its Singapore assets, especially VivoCity, continue to perform well.
MPACT still grew DPU 1.5% year-on-year to S$0.0201 in 2Q FY2025/26 as its cost of debt eased to 3.23% and aggregate leverage improved to 37.6%.
As interest rates come down further, the drag from financing costs should lessen, allowing the strength of its Singapore portfolio to play a bigger role in supporting distributions.
Lower rates also matter from an investor’s point of view.
When 10-year government bond yields fall, the yield gap between REITs and risk-free assets widens again.
That shift tends to bring income-focused investors back into names like CICT and MPACT, especially when the underlying assets are already showing resilience.
In this setting, REITs do not need a dramatic turnaround to perform better, as steady operations combined with lower interest expenses are often enough.
The key takeaway is straightforward.
Falling rates improve the maths for REITs.
Interest savings flow directly into distributable income, yield spreads become more appealing, and confidence gradually returns.
What Investors Should Monitor as Rates Fall
When interest rates drop, investors should pay attention to a company’s financial health instead of just looking at high returns.
How long a company’s debts last and how much of its debt has a fixed rate will impact how fast real estate investment trusts gain from cheaper refinancing.
A company’s financial backing and ability to get money are key, especially for funding purchases or improving properties.
Also, the quality of a company’s holdings and how well its properties stay occupied are still important for keeping cash flow consistent.
Because not all real estate investment trusts are the same, the ones with healthier finances are more likely to do well when rates fall.
Get Smart: Rate Cuts Could Renew REIT Momentum
Lower interest rates may ease the strain on the real estate sector, which has been struggling since 2022.
Investors should concentrate on REITs that have reliable backing, reasonable debt, and solid properties, as these are in the best spot to gain from better financing.
If rate concerns decrease and confidence returns, REITs might again be key for income portfolios.
Macro shifts matter, and falling interest rates can reshape entire sectors.
With borrowing costs declining and cash flows stabilising, the foundations for a REIT recovery are strengthening — and 2026 could mark a turning point for Singapore’s REIT sector.
Disclosure: Joseph G. does not own shares in any of the companies mentioned.
