KUALA LUMPUR (Jan 14) — Malaysia’s real estate investment trust (M-REIT) sector is expected to remain on a firm footing heading into 2026, supported by a more accommodative interest rate environment and fresh catalysts from the Visit Malaysia 2026 (VM2026) tourism campaign, according to Hong Leong Investment Bank (HLIB).
In its latest sector update, HLIB said overall REIT fundamentals remain healthy, with retail and hospitality REITs poised to benefit most from rising tourist arrivals, while industrial REITs continue to enjoy strong occupier demand driven by ongoing manufacturing investments.
HLIB noted that easing interest rates should continue to support REIT valuations and income appeal. In addition, government measures aimed at sustaining household spending — including cash assistance programmes — are expected to provide indirect support to retail assets.
A further positive for the sector is the reduction in the service tax on rental income from 8% to 6% effective January 2026, which should help ease cost pressures on tenants and support occupancy levels across commercial property in KL and key urban centres in Selangor.
Retail and hospitality REITs are expected to see meaningful upside from VM2026, stronger regional travel flows, and improving Chinese visitor momentum.
HLIB highlighted that Chinese tourists contribute around 20% of Malaysia’s tourism receipts and typically record longer stays with higher daily spending. This trend is expected to support earnings for REITs with exposure to prime shopping malls and hotels in major destinations, including Kuala Lumpur and surrounding growth nodes.
The office REIT segment is showing signs of stabilisation, with new supply growth estimated at a manageable 1.3% in 2025. However, a higher 2.7% supply pipeline in 2026 may lead to some tenant reshuffling, particularly as occupiers seek more efficient or better-located office space in Bukit Jalil and established business districts across KL.
In contrast, industrial REITs remain one of the strongest-performing sub-sectors. Demand continues to be supported by resilient manufacturing activity, positive rental reversions, and policy tailwinds under initiatives such as the New Industrial Master Plan 2030, National Energy Transition Roadmap, and the GEAR-uP programme.
These factors are reinforcing long-term demand for industrial land in Selangor, factory assets in Puchong, and modern logistics and industrial property in the Subang area, particularly among multinational and export-oriented occupiers.
From a valuation perspective, HLIB said M-REITs continue to trade at attractive yield spreads. Sector yields are currently about 0.6 standard deviation above the five-year average when compared against 10-year Malaysian Government Securities, reinforcing the sector’s appeal to income-focused investors.
The bank also noted that M-REITs outperformed the broader equity market in 2025, with the REIT Index rising 8.3%, compared with a 2.3% gain in the FBM KLCI. This outperformance was largely driven by the July 2025 overnight policy rate cut and a shift by investors towards more defensive, yield-generating assets.
HLIB has maintained its “overweight” stance on the M-REIT sector, citing a combination of supportive macro conditions, policy initiatives, and sector-specific growth drivers. The bank continues to name Sunway REIT and Pavilion REIT as its preferred picks.
As Malaysia moves towards VM2026, the outlook for REITs with exposure to commercial property in KL, well-located office space in Bukit Jalil, and high-demand industrial property in Selangor remains constructive, supported by both cyclical recovery and long-term structural growth trends.
Yao Mu Realty, based in Kuala Lumpur, Malaysia, specializes in industrial real estate for factories and land, delivering professional and efficient solutions.
Posted by Yao Mu Realty Sdn Bhd on 15 Jan 26
Malaysia