The domestic listed real estate investment trust (REIT) market is on a seemingly endless downward slide. The aftermath of the trading suspension of J.R. Global REITs, compounded by interest rate pressure, has prolonged the sector's marginalization in the stock market.
On the 12th, the KRX Real Estate Infrastructure REITs Index closed at 1,120.53 on the Korea Exchange, down 13.68 points (1.21%) from the previous trading day. This is the lowest level since the index was published in December 2019. The KRX Prime Office REITs Index, established last year, also set a new low.
Of the 22nd listed REITs currently trading, 11 hit new lows during the fourth quarter of this year. InVITS Macquarie Infrastructure, which holds a high weighting in domestic REIT index-tracking exchange-traded funds (ETFs), closed at 9,720 won on the day, widening its cumulative decline for the year to 13.60%.
As stock prices fail to find footing, trading volume has also contracted. The average daily trading value of constituent stocks in the KRX Real Estate REITs Infrastructure Index this month was 14.9 billion won, falling below one-third of the level in June (48.6 billion won).
The primary drivers of the decline are cited as refinancing burdens and concerns over subsequent dividend cuts. This is because borrowings secured during a low-interest-rate period are coming due, making a surge in interest costs unavoidable.
According to data compiled by NH Investment & Securities, Coreumco Life Infrastructure REITs has the highest proportion of debt maturing next year at 67%, followed by Hanwha REITs and Shinhan Alpha REITs at 48%, Lotte REITs at 44%, and SK REITs at 40%.
Lee Eun-sang, a researcher at NH Investment & Securities, stated, "Trading values for individual stocks and major REIT ETFs have declined simultaneously, continuing the sluggish trend from the previous month," adding that this is due to heightened market wait-and-see sentiment ahead of interest rate hike decisions.
Concerns that Seoul-area office buildings, a core asset of domestic listed REITs, are on the verge of significant supply expansion are cited as a factor fueling weak investor sentiment. Commercial real estate services firm Cushman & Wakefield Korea estimates that approximately 2.57 million square meters of new office space will be supplied to Seoul's three major business districts (Jongno, Gangnam, and Yeouido) over the next five years.
Kim Sun-mi, a researcher at Shinhan Investment Corp, noted, "In addition to structural limitations of domestic REITs—such as limited idle funds, short-term debt structures, stock price volatility caused by rights offering (paid-in capital increase) asset acquisitions, and a thin investor base—interest has waned due to the J.R. incident." She added, "While reforms in taxation and rights offering procedures, along with the expansion of project REITs, are being pursued, institutional improvements are expected to take a long time."
Regarding future stock selection strategies, experts advised paying attention to interest rate trends and artificial intelligence (AI) data center construction developments. This is because forecasts favor the end of the tightening cycle in the first half of next year, and considering the impact of the data center delay debate that emerged locally after the U.S. midterm elections, construction momentum in regions such as Korea has strengthened, meaning some stocks holding infrastructure assets could be re-evaluated.
Lee Kyung-ja, a researcher at Samsung Securities, stated, "Korea possesses locational advantages, including favorable AI policies, an excellent supply chain, high AI adoption rates, and submarine cable connections." She added, "Given that the manufacturing-centric economic structure is advantageous for applying physical AI, an industry for monetizing AI, demand from big tech companies for leasing and joint development is expected to increase."
in STOCK
