Malaysian REITs set for healthy leasing demand, positive rental reversions

KUALA LUMPUR: Malaysia's real estate investment trusts (REITs) are expected to continue seeing healthy leasing demand, stable-to-improving occupancy rates and positive rental reversions, RHB Research said.

The research house, however, expects net property income margins for retail REITs to normalise from the strong levels seen in the first half of 2026 (1H26).

It said the shift in the automatic fuel adjustment mechanism from a rebate to a surcharge in May would partly offset electricity cost savings from the July 2025 tariff revision.

Industrial REITs should be less affected given their lower exposure to utility costs.

RHB Research expects the overnight policy rate to remain at 2.75 per cent into 1H27, while its sensitivity analysis showed that a 25-basis-point increase could reduce FY27 earnings by up to two per cent.

"Taken together, we expect these headwinds to remain manageable, while healthy leasing fundamentals should preserve earnings and distribution visibility," it said.

All eight REITs under RHB Research's coverage delivered results in line with expectations.

On a market capitalisation-weighted basis, sector revenue and earnings rose 14.5 per cent and 15.6 per cent year-on-year, respectively.

Quarter-on-quarter, however, revenue fell 3.2 per cent and earnings declined 6.5 per cent, mainly due to seasonally weaker retail performance.

"Operating indicators remained healthy, with generally stable occupancy, positive rental reversions and resilient leasing demand," it said.

Axis REIT was a softer spot, with 1H26 core earnings falling 4.9 per cent year-on-year, weighed down by vacancies at selected assets, rental suspension at Wisma Kemajuan and one-off maintenance expenses.

RHB Research expects these factors to be largely temporary, with committed leases progressively lifting Axis REIT's occupancy rate to 95 per cent by January 2027.

Its RM456 million acquisition and development pipeline should also support a stronger earnings recovery from FY27, it said.

RHB Research retained its "Overweight" call on the sector, with Axis REIT and Pavilion REIT as its top picks.

It said the Bursa Malaysia REIT Index had underperformed the broader market year-to-date, weighed down by the expiry of the longstanding withholding tax concession and higher bond yields.