Prime US REIT's Strong HY Net Property Income Signals Resilience in the Office REIT Sector

The U.S. commercial real estate sector is navigating a complex landscape in 2025, with divergent trajectories between the office and retail REIT markets. While the retail sector has shown robust fundamentals—driven by constrained supply and strong consumer demand—the office sector faces headwinds from elevated interest rates and lingering hybrid work trends. Yet, Prime US REIT (SG:OXMU), a prime office REIT, has demonstrated resilience through disciplined capital management and a strategic focus on high-quality assets. Its recent performance, including a reported net property income (NPI) of US$17.7 million for the first half of 2025, offers insights into how office REITs can preserve capital and generate stable income in a challenging environment.

Navigating a Challenging Environment

Prime US REIT's HY NPI of US$17.7 million, a 7.33% decline year-over-year, reflects broader pressures on the office sector. Elevated interest rates since late 2023 have increased borrowing costs, while remote work arrangements have dampened demand for traditional office space. However, the REIT's 78.9% occupancy rate as of March 2025—despite a slight quarterly dip—underscores its ability to retain tenants in a competitive market. This resilience is bolstered by a weighted average lease expiry of 4.3 years, providing a buffer against short-term volatility.

The REIT's strategy of targeting “flight-to-quality” demand has been critical. By focusing on Class A office properties in prime U.S. submarkets—such as Austin, Seattle, and Gaithersburg—it has attracted long-term tenants, including a clean energy firm backed by a global tech giant. These tenants prioritize premium locations with modern infrastructure, aligning with the sector's shift toward sustainability and flexibility.

Capital Preservation and Future Growth

Prime US REIT's financial discipline further strengthens its position. With no debt maturing in 2025, the REIT maintains liquidity to reinvest in its portfolio or capitalize on acquisition opportunities. Additionally, 268,000 square feet of leases signed in FY2024 and 1Q2025 are set to generate incremental rental income, with 21% commencing in 2Q2025 and 68% in 2H2025. These upcoming inflows, combined with large leases at the Letter of Intent (LOI) stage, suggest a strategic buildup of future cash flows to offset current challenges.

Office vs. Retail: A Tale of Two Sectors

While the user's prompt references the retail sector, it is worth noting that retail REITs have outperformed office peers in 2025. Retail fundamentals—low vacancy rates (5.6% for neighborhood/community centers), strong tenant demand, and yield premiums—have attracted institutional investors. However, office REITs like Prime US REIT are not without hope. Analysts anticipate an inflection point in the sector by early 2026 as return-to-office mandates gain traction and companies prioritize in-person collaboration.

Prime US REIT's focus on well-located, amenitized properties positions it to benefit from this recovery. Its portfolio, spread across 13 U.S. markets with a total carrying value of US$1.36 billion, is designed to withstand macroeconomic volatility. For instance, its flagship Waterfront At Washingtonian property in Gaithersburg achieved 85% occupancy following a major renovation and a 11-year lease with a clean energy tenant.

Investment Implications

For investors seeking capital preservation and income stability in a high-interest-rate environment, Prime US REIT offers a defensive profile. Its emphasis on long-term leases, geographic diversification, and capital-efficient strategies mitigates risks associated with sector-wide challenges. While the retail sector may appear more immediately attractive, the office sector's gradual recovery—driven by corporate demand for premium assets—presents a compelling long-term opportunity.

Conclusion

Prime US REIT's performance highlights the importance of quality and adaptability in the office REIT sector. While its HY NPI declined, the REIT's proactive approach to tenant retention, capital structure, and future income streams demonstrates resilience. For investors, this underscores the value of selecting REITs with strong operational metrics and a clear vision for navigating macroeconomic cycles. As the office market stabilizes, Prime US REIT's curated portfolio and strategic positioning could deliver steady returns, making it a worthy consideration for those prioritizing income stability in a high-interest-rate environment.