Getting to know more about industrial REITs in Singapore
REITs are a popular investment option because of its ability to provide regular passive income, capital gains and portfolio diversification. In Singapore itself, there are over 30 REITs for investors to choose from.
But there are many types of REITs available in the market; one particular niche category that might be of interest is industrial REITs.
The Global Industry Classification Standard (GICS) defines industrial REITs real estate investment trusts that are primarily involved in the acquisition, development, ownership, management and leasing of industrial properties such as factories, distribution centres and warehouses.
Properties in industrial REITs are typically located away from a country’s central business district and can either exist as a standalone building leased out to multiple tenants, a cluster of buildings within an industrial park or even a standalone building leased out to a single tenant.
So in the case of Singapore, this would be areas like Jurong and Tuas, among others.
Advantages of Industrial REITs
1. Faster reaction to current economic conditions
Proponents of industrial REITs believe they react relatively faster within the economic cycle, compared to other REIT sectors. This gives it an advantage from an investment standpoint.
Unlike hotels or shopping malls, properties in industrial REITs take a shorter time to build and will rarely exceed a year of construction time.
This means that developments of industrial buildings are largely considered to be more responsive to current economic conditions and are not as susceptible to excessive overbuilding.
2. Properties are more configurable and can be adapted to meet specific demands
The versatility of industrial properties allow for it to be pliable at specific points of time in the economic cycle, should the need arise.
As the economy slows down and floor inventory piles up, space that was previously used for manufacturing activity can be quickly converted into a warehousing facility or even office space, subject to regulatory approvals.
This adaptability is seen as an investment advantage.
3. Industrial REITs are also more modest on capital expenditures (CAPEX)
Again, unlike hotels and shopping malls, properties under industrial REITs have little need for periodic aesthetic makeovers or asset enhancement initiatives. When little is needed to be spent on CAPEX, it usually translates into more income distribution for unitholders.
However, like all investment instruments, there are always two sides to the coin. Thankfully, the advantages of industrial REITs outweigh the disadvantage of investing in them.
The flip-side – downside of industrial REITs
Leases for properties in industrial REITs are typically shorter than REITs in other categories with most being only 30 years. There are industrial REITs with properties on longer leases but these rarely exceed 60 years.
These short terms of lease means that there may not be as much opportunity for organic growth in aggregate portfolio value when compared to other REIT types.