HLIB Research favours Axis-REIT with a target price of RM1.99 a unit as well as Sunway-REIT and IGB-REIT for their strategically located prime retail malls.
PETALING JAYA: Hong Leong Investment Bank (HLIB) Research is keeping its “neutral” stance on the real estate investment trust (REIT) sector, as a favourable outlook for some sub-segments are neutralised by less optimistic projections for others.
Dividing the REIT industry into a number of segments including offices, retail, industrial and hotels, the research house noted there was still an oversupply of office space, especially in the Klang Valley, with vacancy rates staying at 30%.
“Despite the economy being fully reopened with mobility to office back to pre-pandemic level, the gradual recovery in demand is struggling to stomach new office supplies following the completion of several new buildings in the Klang Valley,” HLIB Research stated in a research note yesterday.
Citing a report from real estate company Cushman & Wakefield, HLIB Research said the effect is more pronounced for owners of offices in older buildings, because unlike their newer counterparts, which are able to provide the latest office requirements, the older buildings are facing challenges in retaining tenants without decreasing asking rents.
Hence, it believes rental upside for office-based REITs should remain dim in 2023, barring a significant reduction in office space supply.
For the retail segment, HLIB Research pointed out that landlords at prime malls reported strong footfalls and tenant sales in the second half of last year, despite earlier concerns inflationary and interest rate hikes could dampen consumer spending power.
The research house is also positive about the industrial REIT segment, which has proven its resilience throughout the lockdowns and supported by substantial growth of eCommerce activities, which, in turn, lifted the demand for logistics-related industrial properties.
With travel restrictions being lifted the world over, demand is returning for the hotel segment, though the positive effect has also been offset by labour shortages to operate at optimum capacity, HLIB Research said.
“Looking ahead, we believe the hotel sector should continue delivering gradual recovery, supported by resumption of international travels across the globe. A key catalyst to the recovery would be China’s impending border reopening on Jan 8 as outbound travel is slated to resume for its citizens in an orderly manner,” said the research unit.
HLIB Research favours Axis-REIT with a target price of RM1.99 a unit as well as Sunway-REIT and IGB-REIT for their strategically located prime retail malls. Its respective target prices for the two REITs are RM1.68 and RM1.89 a unit.
