Hey savvy investors! I’m back from a family holiday—while the break was refreshing and much needed, I have to say, I missed connecting with all of you!
As we approach the end of the year, it’s that time when everyone loves to speculate about what’s ahead for the markets. Now, let me be clear upfront: most predictions for financial markets don’t come true. Even the best analysts get it wrong, so what makes this uncle think he’s any better? I don’t! But today, I’m doing this purely for entertainment and educational purposes. And who knows, some of these guesses might actually spark some interesting ideas for you.
Of course, this post is for informational purposes only, and does not constitute financial advice. Please consult a licensed financial adviser for advice tailored to your own financial needs. Also, just to be upfront, I may hold positions in the REITs and investments I mention today, but this doesn’t mean they’re right for you.
Alright, let’s dive into some fun predictions for REITs in 2025 and see what might be in store for us dividend investors!
Interest Rates: Slowly Declining, REITs to Gain 10%
Let’s start with the broader picture. Like many analysts, I’m guessing that interest rates may continue their downward trajectory in 2025, though at a slower pace due to potential inflationary pressures reemerging. In such a case, the U.S. Federal Reserve will stick to its cautious approach, and we might see interest rates cut by only about 75 basis points throughout the year.
While the decline in interest rates might not be rapid, even small reductions can relieve the pressure on REIT valuations. This gradual easing could also improve the borrowing costs for REITs, enabling them to refinance loans at more favorable rates. On an overall level, my totally inaccurate guess is that this could lead to a moderate 10% appreciation in REIT prices by the end of 2025.
Now, I know what you’re thinking: A 10% gain might not seem like much, especially after how long-suffering the REIT market has been. But here’s the kicker: Analysts are expecting the U.S. stock market to deliver only a 8% return in 2025, after huge gains in 2024. This means that REITs could actually “outperform” the broader U.S. stock market for the first time in a long while! For patient income investors, this could be a small but meaningful step towards better performance in the years ahead.
However, we must temper this optimism with caution. Even if REIT prices recover, distribution per unit (DPU) for many REITs could still face downward pressure as loans continue to reprice at higher rates before fully benefiting from the eventual cuts. The path forward may be bumpy, but for those of us willing to wait, quality REITs might finally offer some overdue rewards.
Outlook for US Office REITs: Clarity Ahead
The U.S. office REIT sector has been under significant pressure in recent years, struggling with remote work trends, rising vacancies, and economic uncertainty. But 2025 could be the year that brings much-needed clarity to this embattled sector, if I get my way.
One particularly significant development comes from Elon Musk, who recently called for government workers to return to the office. Musk, whom many analysts are expecting to be an influential figure with ties to incoming president Donald Trump, has publicly criticized remote work for its impact on productivity. If this sentiment gains traction within the new administration, it could signal a major policy shift for government office workers.
Currently, according to previous announcements from Manulife US REIT, only 10% of government office workers are working from the office, contributing to low physical occupancy rates in office buildings. If more government workers were to return to the office, we could see physical occupancy rates improve significantly in 2025. This would provide much-needed certainty and stability for continued demand in office spaces, a positive development for U.S. office REITs.
Beyond government offices, several major corporations have already taken steps to bring employees back. Amazon, Google, and Meta Platforms have mandated hybrid work arrangements, with employees required to return at least three days a week. Even Goldman Sachs has doubled down on in-office attendance, reinforcing the value of collaboration and team cohesion.
If these trends hold, U.S. office REITs could possibly emerge as winners. For instance, Manulife US REIT and Keppel Pacific Oak REIT. In particular, the latter focuses on the tech sector which has continued to do well due to substantial investments in AI-related areas and companies.
However, investors should note that while these developments are promising, the U.S. office REIT sector remains a high-risk, high-reward play. Careful evaluation of individual REIT fundamentals will be critical to identifying those best positioned to benefit from a rebound in office demand.
Before we move on, if you’ve enjoyed the content so far, do consider giving me a “like”! Consider it your way of spreading the year-end Christmas spirit to your friendly dividend uncle!
China REITs: A Slight Recovery on the Horizon
The story of China’s economic recovery has been a rollercoaster ride, filled with highs of optimism and lows of disappointment. I understand that many investors feel they’ve been burned by false dawns in the China recovery story in 2024. The property market downturn has been much deeper and had a far wider impact than anyone expected, shaking confidence across the board.
Despite numerous rounds of government stimulus, it often feels like it’s never enough. However, the latest stimulus measures have reignited some hopes. But let’s be honest, we won’t know for sure whether they’ll finally be sufficient to turn the tide. What does seem clear to me, though, is that the Chinese government is increasingly recognizing the urgency and necessity of boosting the economy.
In 2025, this uncle’s wildest dream is that the Chinese government will eventually win the market over. Domestic consumption could start to recover, supported by further measures to stabilize the economy, despite ongoing trade tensions with the U.S. While there’s still uncertainty, I think we could be approaching a turning point.
For China-focused REITs, this potential recovery presents an opportunity for significant upside. For instance, CapitaLand China Trust and Mapletree Pan Asia Commercial Trust, which have exposure to key commercial and retail assets in China, stand to benefit greatly. Both REITs are currently trading at multi-year lows in terms of price and investor confidence, reflecting the heavy pessimism around China’s economy.
If domestic consumption indeed picks up and the retail and logistics markets stabilize, these REITs could rebound strongly, driven by improved tenant demand and better rental performance. Investors should still approach cautiously, but for those willing to bet on a turnaround, 2025 could mark the beginning of a recovery in China-focused REITs.
REITs That May Be Gone by the End of 2025
And now, let’s talk about the possibility of certain REITs disappearing by 2025.
Firstly, Paragon REIT, where there is speculation in the media is that it may be delisted due to the lack of scale. Whether this materializes depends on several market factors, but let’s run through the considerations for now.
Cuscaden Peak Investments, which owns about 81% of Paragon REIT, has been actively recycling its assets and consolidating its portfolio. Recent disposals, such as The Rail Mall in Upper Bukit Timah and FigTree Grove Shopping Centre in New South Wales, highlight a clear strategy of divestment and cash distribution.
Paragon Shopping Centre, the jewel in the REIT’s crown, continues to command a premium due to its prime Orchard Road location and stable tenant demand. According to recent valuations, Paragon is worth a whopping $2.88 billion. In a market where high-quality assets are in demand, Paragon Shopping Centre may be a target for a buyout.
Some of you have asked me, “Hey, isn’t Mapletree Investments a key shareholder of Cuscaden Peak Investments, the major owner of Paragon REIT? Could this mean that Mapletree Pan Asia Commercial Trust or M PACT, might acquire Paragon?” My take? It’s highly unlikely. With M PACT currently trading at a price-to-net-asset-value ratio of just 0.7, any significant fundraising for such an acquisition would be challenging in the current environment.
Next, we have Suntec REIT, which recently made headlines due to Gordon and Celine Tang’s mandatory conditional offer of $1.16 per unit. This offer was triggered by their total stake in Suntec REIT surpassing 30%, requiring them by law to make a takeover bid.
However, since the offer price isn’t at a premium to the current market price and falls significantly below the net asset value of $2.097 per unit, analysts have advised unitholders to reject it. Given these factors, I believe Suntec REIT is likely to remain on the scene for a while longer.
This offer highlights the increasingly optimistic sentiment surrounding Suntec REIT as interest rates continue to decline. While the mandatory conditional offer is unlikely to succeed, unitholders should keep a close eye on Suntec REIT’s performance to identify any potential opportunities that may arise from this renewed interest.
The Dividend Uncle’s Take
So, what’s my take on all these wild predictions? Well, as much as this uncle likes to imagine the future, let’s not forget that predictions, no matter how entertaining, are ultimately guesses. I’ve seen enough to know that the market rarely moves as expected. That said, these scenarios are worth pondering because they help us prepare for various possibilities, whether it’s a slow and steady rebound for REITs, a turning point for U.S. office spaces, or a surprise recovery in China.
For my portfolio, I’m personally staying invested in quality REITs with solid fundamentals that I believe can ride out the ups and downs. At the same time, I’ll be watching these developments closely, especially in areas like U.S. office demand and China’s economic recovery. If there’s one thing we know about the market, it’s that opportunity often shows up when least expected.
But let’s not take ourselves too seriously here, after all, if I could predict the future, I’d be sipping kopi on my private yacht instead of writing this post for you. My advice? Stay diversified, keep an eye on the long term, and don’t forget to enjoy the ride, bumps and all.
And speaking of rides, as we wrap up 2024, I hope these ridiculous predictions gave you a few ideas, or at least a good laugh. As always, remember that my portfolio choices may not suit everyone, so do your own research and consult a financial adviser if needed.
Now, here’s a question for you: Which of these predictions do you think is most likely, or most ridiculous? Let me know in the comments below, and let’s see who gets it right by the end of 2025. Until next time, happy investing, and may your dividends always grow!
The Dividend Uncle 
Leave a comment