[KUALA LUMPUR] Malaysian real estate investment trusts (Reits) appear to be making a comeback, beating the broader market as investors chase defensive and yield-generating assets amid expectations of rate cuts.
But the momentum faces a near-term test, with the expanded Sales and Services Tax (SST) kicking in on Jul 1. As the upcoming tax compels landlords to levy an 8 per cent service tax on commercial leases, analysts expect it to drive costs up for tenants and dent Reits’ earnings.
RHB Research analyst Wan Muhammad Ammar Affan observed that the Bursa Malaysia Reit index has modestly outperformed both the FBM KLCI and FBM100 indices since 2022.
“M-Reits have demonstrated greater stability than the broader equity market, particularly during recent periods of global market volatility,” he told The Business Times.
The Bursa Malaysia Reit Index has risen 2.5 per cent in the year to Jun 13, even as the benchmark FBM KLCI slipped nearly 0.6 per cent.
Twenty Reits with a collective market capitalisation of nearly RM54 billion (S$16.3 billion), are listed on Bursa Malaysia. These Reits offer dividend yields of between 5.6 per cent and 6.1 per cent – a spread of up to 258 basis points over 10-year Malaysian Government Securities.
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The sector’s momentum, particularly in the retail and industrial segments, was underpinned by Bursa Malaysia’s largest Reit listing in 13 years – that of the RM1.6 billion debut of Paradigm Reit last week.
The trust, backed by one of the country’s long-time construction stalwarts WCT Holdings, owns and manages malls in the urban catchments of Johor and Selangor, all boasting strong occupancy.
Wan Muhammad noted that while easing US-China tensions may redirect some capital flows toward riskier assets or cyclical sectors, Reits should continue to benefit from declining bond yields amid expectations of global interest-rate cuts.
“As bond yields fall, the yield spread between Reits and government bonds widens, making Reits more attractive to income-seeking investors,” he added.
Looming risks
But challenges are afoot for the sector.
While trusts with prime assets and strong tenants should remain resilient, the broader SST expansion could hurt weaker-performing properties at risk of higher vacancy, said CGS International Research.
“Reits with lower-quality portfolios may need to offer rental support, which could weigh on earnings and distributions,” it noted.
There are other risks as well. Maybank Investment Bank Research analyst Nur Farah Syifaa noted that while Reit managers remain cautiously optimistic, they face risks such as rising power tariffs, subsidy rationalisation, and limited ability to raise rents in a weak consumer environment.
MIDF Research analyst Jessica Low has downgraded the sector to “neutral”, noting that earnings for many retail Reits have already normalised to pre-pandemic levels. She expects a more moderate pace of growth going forward.
Bursa Malaysia’s latest debutant, Paradigm Reit finished flat on its maiden day of trading on Jun 10; as at Jun 17, it was 3 per cent up at RM1.03.
The Reit owns Paradigm Mall Johor Bahru, Paradigm Mall Petaling Jaya and Bukit Tinggi Shopping Centre in Selangor; the manager is looking to add four more assets – Hyatt Place Johor Bahru Paradigm Mall, Le Meridien Petaling Jaya, Premier Hotel Klang and Gateway@Kuala Lumpur International Airport Terminal 2 – into the portfolio by 2026.
Retail and industrial reits shine
Retail and industrial Reits remain top picks among analysts. Sunway Reit and Pavilion Reit lead in the retail space, backed by high footfall and tenant quality.
Sunway Reit, with RM10.5 billion in assets, recently expanded its flagship Sunway Pyramid Mall and upgraded Sunway Carnival in Penang, positioning itself for rental upside. Pavilion Reit, anchored by Pavilion Kuala Lumpur Mall and Pavilion Bukit Jalil, continues to benefit from returning tourist traffic.
“Footfall in well-located malls has returned strongly, particularly those with strong exposure to tourism,” said RHB’s Ammar. “This supports healthy rent growth and stable occupancies.”
Industrial Reits are favoured for their defensive characteristics and predictable income. Axis Reit, the first industrial-focused trust on Bursa Malaysia, owns 69 properties with 97 per cent occupancy, and posted 5.3 per cent rental reversion in 2024.
AME Reit, based in Johor, recently acquired three new industrial assets, expanding its portfolio to 44 properties.
RHB Research estimates AME’s ongoing RM148 million acquisition pipeline could lift its total asset value by 31 per cent, boosting earnings over the next two years.
“Industrial Reits are seen as the most stable in terms of tenancy and occupancy risk, but typically see slower rental growth, with reversions generally in the low single-digit range due to the long-term nature of their leases,” said Ammar.
Office segment under pressure
Maybank’s Nur Farah noted that although office Reits are largely supported by long leases and stable occupancy, the segment remains challenging amid an oversupply and changing tenant preferences.
Ammar said the persistent supply-demand imbalance has reduced the attractiveness of office Reits, with investors remaining cautious about potential declines in occupancy – and this is despite the segment’s usually higher dividend yield.
“The risk of declining occupancy lingers as corporations consolidate or shift to green-certified, hybrid-ready buildings,” he added.
Portfolio diversification
Yulia Nikulicheva, head of research and consultancy at JLL Malaysia, highlights that Malaysian Reits have undergone notable changes in their investment strategies over the past five years.
“Previously, Reits primarily concentrated on traditional assets such as offices, shopping centres, retail spaces and hotels. Today, however, they are increasingly diversifying into new sectors,” she told BT.
Logistics and industrial properties are emerging as key growth areas, she said, noting also a growing trend among Reits to diversify further by incorporating educational and healthcare properties alongside logistics and industrial assets.
For example, CapitaLand Malaysia Trust has expanded its portfolio by acquiring multiple industrial assets in recent years, boosting the proportion of these properties in its holdings.
Sentral Reit, which focused on the office segment, has unveiled plans to diversify its asset base across the office, retail, industrial, education and healthcare segments to mitigate sector-specific risks and strengthen property income streams.
Similarly, Singapore-based Mapletree Logistics Trust has been actively purchasing assets in Malaysia, further extending its presence in the country.
“Despite these shifts, Malaysia’s Reit market remains relatively conservative, with most players making only modest changes to their portfolios over the past three years,” said Nikulicheva.
Potential rate-cut boon
Maybank’s Nur Farah added that the anticipated rate cuts by Bank Negara Malaysia would be a boon for the sector in that it would lift asset valuations and ease financing costs.
Falling bond yields widen the yield spread between Reits and sovereign debt, boosting the attractiveness of Reits for income-focused portfolios.
A cut in the overnight policy rate (OPR) by Bank Negara in the second half of 2025, she said, would help those Reits which are carrying more floating-rate debt, by triggering spread compression.
“This move would enhance valuations and reduce borrowing costs for Reits pursuing growth. While most Reits are still guiding for stable dividends and boast comfortable gearing levels, there’s still capacity for strategic, yield-enhancing acquisitions,” she added.
Still, Nikulicheva cautioned that in an environment of heightened uncertainty, a 25-basis-point rate cut may not materially alter investors’ yield expectations. “In theory, lower rates should push yields down, but risk perception plays a bigger role in this cycle,” she said.
In addition, the high occupancy rates enjoyed by large-cap M-Reits should continue to support healthy dividend growth. There is also potential earnings upside from acquisitions, further supported by lower borrowing costs, particularly for Reits with floating-rate debt as bond yields decline.
