PETALING JAYA: Malaysian real estate investment trusts (REITs) are expected to maintain stable performances in the near term, in spite of prevailing uncertainties.
Olive Tree Property Consultants founder and chief executive officer Samuel Tan said the local REIT sector has outperformed the broader market in 2025, driven by robust investor demand for stable income and attractive yields, particularly in retail and industrial segments.
“Through the first three quarters of 2025, REITs have demonstrated resilience, navigating significant market volatility to post modest gains.
“The outlook for the remainder of the year suggests they are well-positioned to handle continued uncertainty, with potential for growth in specific sectors,” he told StarBiz.
Despite challenges from the expanded sales and services tax (SST) and rising costs, Tan said REITs stand to benefit from likely interest-rate cuts following the US Federal Reserve’s (Fed) rate easing.
“This supports earnings, enhances dividend appeal and reinforces sector resilience amid a changing environment,” he said, adding that REITs have proven their resilience in a “turbulent 2025.”
“While the ride may not be over, the sector’s strong fundamentals and selective growth opportunities suggest a capacity to handle ongoing uncertainty and potentially deliver solid performance in the months ahead.”
Despite the steady performance, Savills Malaysia Sdn Bhd group managing director Datuk Paul Khong noted that REITs also face challenges, especially if their portfolios consist of older or non-prime assets that continue to experience both occupancy and rental pressures.
“While these REIT counters offer stable yields, selectively, however, their unit prices are still coming under pressure, trading below net tangible asset levels, clearly reflecting weaker investor sentiments.
“As we move forward into 2026, REITs with strong sponsors and a good future pipeline, high occupancy rates, a diversified tenant base and also clear environmental, social and governance initiatives will (likely) outperform their peers,” he said.
CIMB Securities, in a recent report, said the earnings outlook for REITs remains broadly stable for the remainder of this year, but noted that “a few variables” warrant close monitoring given their potential impact on rental income.
“Turnover rent, which typically contributes 12% to 15% of retail REITs’ total rental income, could be sensitive to shifts in consumer sentiment.
“Additionally, the implementation of 8% SST on leasing services could exert downward pressure on our rental reversion assumptions.
“Our sensitivity analysis suggests that a 1% decline in rental reversion could reduce financial year 2026 (FY26) earnings forecasts for the REITs under our coverage by 1.5% on average.”
For now, the research house has maintained its base-case assumption of mid-single-digit rental reversion for FY26.
“On a more positive note, the 25-basis-point (bps) overnight policy rate (OPR) cut in July 2025 is anticipated to translate into interest cost savings, particularly for REITs with higher floating-rate debt exposure.
“We estimate that every 25 bps decline in a REIT’s floating rate debt could lead to annual cost savings of 0.9% to 3.1% in FY26 for the REITs under our coverage.”
CIMB Securities anticipates stronger quarter-on-quarter earnings (from the third quarter of 2025 [3Q25] onwards) for local REITs, underpinned by factors such as the 25bps OPR cut, the automatic fuel adjustment discount, and the gradual recovery in tourist arrivals.
“Al-Aqar Healthcare-REIT stands out as the key beneficiary of the lower OPR rate, given its full exposure to floating-rate borrowings, while Axis-REIT (52% floating) and Sunway-REIT (40% floating) are also poised to benefit.
CIMB Securities added that the impact of lower funding costs is expected to be compounded by savings in utilities, which account for around 22% of REITs’ property operating costs, on average.
“Moreover, Malaysia’s tourist arrivals have been trending upwards since April 2025, reaching 12.8 million (up 8.6% year-on-year) in the first half of 2025, boosting footfall at retail malls.”
Meanwhile, Tower-REIT noted in its annual report that the Klang Valley office market is showing signs of easing oversupply, despite elevated vacancy levels – driven largely by the demand for Grade A, environmental, social and governance (ESG)-compliant buildings.
“In response, the manager will pursue selective asset enhancements to improve energy efficiency, tenant experience and competitiveness balanced by disciplined cost management.”
The company added that flexible leasing options will continue to be expanded in order to strengthen the leasing pipeline and increase occupancy rates.
“With assets concentrated in prime Kuala Lumpur locations – supported by proactive leasing, ESG integration and green certifications – the trust is well-positioned to sustain occupancy, meet evolving tenant expectations and create long-term value for unitholders.”
KIP-REIT executive director and chief executive officer Valerie Ong Pui Shan said the government’s continued infrastructure drive under its national development plans, coupled with initiatives in upgrading suburban connectivity, is anticipated to stimulate growth in the retail and industrial sectors – areas in which the company “has a strong and growing footprint.”
“KIP-REIT is poised to benefit from the full contributions of DPulze Shopping Centre, TF Value-Mart, and the integration of the four newly approved retail assets in high-growth suburban catchments.
She said KIP-REIT’s asset enhancement initiatives at KIPMall Tampoi are well underway, aimed at refreshing the tenant mix, elevating the shopping experience and strengthening long-term asset value.
“These strategic acquisitions are not just about adding scale but they’re about building a base of reliable, recurring income streams that can deliver stability even in changing market conditions,” Ong said in the company’s annual report.
“We’re entering FY26 ending June 30, with a healthy portfolio occupancy rate of 96.7% and a solid balance sheet that gives us the flexibility to seize new opportunities.
“KIP-REIT is well-positioned to capture the rising spending power of suburban consumers, while our industrial assets stand to benefit from the growing demand for strategically located industrial properties,” Ong added.
