GLOBAL - Singapore's REITs accounted for one-tenth of all property transactions in the first quarter, according to credit rating agency Standard & Poor's.

Listed S-REITs accounted for $400m (€247.5m) of the estimated $4bn (€2.5bn) of commercial transactions in the first quarter.

Wee Khim Loy, analyst at S&P, said: "We expect this confidence and the strong liquidity in the capital markets to support the S-REITs push to enlarge and improve their portfolio quality.

"Given low interest rates and favourable funding environment, S-REITs are expected to remain active in the property market in the second half, particularly in the industrial property segment."

Aside from rising interest rates and uncertainty over the euro-zone and US debt crises, the fairly short debt maturity profile offered by lenders could be a challenge, Loy said.

"S-REITs would prefer longer-tenor debt profile," she said. "However, the debt markets in Southeast Asia tend to prefer 3-5 year tenor, to match the lease expiry profile of S-REITs' property portfolio."

Recent acquisitions indicate an increasing appetite for risk.

"Risk appetite is increasing, driven by S-REITs' desire to diversify cash flow source and reduce cash flow volatility," said Loy. "It implies higher leverage, reduced debt headroom, gearing could move closer to limits set by regulators."

Lease rates in the city-state are also expected to rise in the office, retail and industrial segments.

Office lease rates are seen continuing on the uptrend for the rest of 2011, but the extent of the increase is likely to moderate in 2012 as new office space comes into the market, Loy said.

In the retail and industrial market, lease rates are still increasing steadily, as demand is likely to outstrip supply for the next 12 months.