Malaysian REITs set for healthy leasing demand, positive rental reversions

Malaysia's real estate investment trusts (REITs) are expected to maintain robust leasing demand, stable-to-improving occupancy rates, and positive rental reversions, according to RHB Research. The research house anticipates a return to normal net property income margins for retail REITs after strong levels witnessed in the first half of 2026.

The shift in the automatic fuel adjustment mechanism from a rebate to a surcharge in May partially offsets electricity cost savings from the July 2025 tariff revision. Industrial REITs are expected to be less impacted due to lower exposure to utility costs. The overnight policy rate is projected to remain at 2.75% into the first half of 2027, with a 25-basis-point increase potentially reducing FY27 earnings by up to 2%.

All eight REITs under RHB Research's coverage met expectations, with sector revenue and earnings growing 14.5% and 15.6% year-on-year, respectively. Although quarter-on-quarter revenue fell by 3.2% and earnings declined by 6.5% due to weaker retail performance, operating indicators remain healthy, with stable occupancy, positive rental reversions, and resilient leasing demand.

Axis REIT, however, experienced a decline in 1H26 core earnings by 4.9% year-on-year due to vacancies, rental suspensions, and maintenance expenses. RHB Research anticipates these factors to be temporary, with committed leases lifting Axis REIT's occupancy rate to 95% by January 2027. The company's RM456 million acquisition and development pipeline is expected to support stronger earnings recovery from FY27.

RHB Research maintains an Overweight rating on the sector, with Axis REIT and Pavilion REIT as top picks. The Bursa Malaysia REIT Index has underperformed the broader market year-to-date, affected by the removal of the withholding tax concession and higher bond yields.