Malaysia's REITs

Upside for REITs remains amid global uncertainty

Real estate investment trusts (REITs) have proven to be resilient assets, especially during periods of uncertainty and volatility. In the first half of the year, Malaysian REITs posted a positive performance despite concerns about rising interest rates, inflation, and global economic growth.

According to the Bursa Malaysia REIT index, the sector’s yield has continued to attract investors seeking steady returns, especially at a time when other traditional income investments are losing their shine.

The sector has delivered an average yield of 6.11% for the year ended June 30, outpacing other asset classes such as government bonds and fixed deposits. Portfolio managers and investment experts say Malaysian REITs are currently undervalued and the year-to-date (YTD) price gains provide a good base to pick up bargains.

Notes Fortress Capital Group CEO Thomas Yong: “We envisage that it is also one of the few asset classes that can be defensive, but still offer potential upside. The positive outlook for certain REITs — particularly those holding strong quality, high occupancy properties and sustainable growth prospects — should anchor their performance, buoyed by healthy rental activity and inflation-driven rental reviews.”

Property investment returns may also become more attractive as inflation subsides and central banks finish tightening monetary policy, says MIDF Amanah Investment Bank analyst Dr Nazri Khan. Meanwhile, future lease rental hikes may not be fully reflected in the present REIT market, given how it has already softened in 1H2025, but in markets with strong demand and liquid REITs, particularly retail, [returns are] expected to continue to do well.

Broadly, REITs are less sensitive to geopolitical risks, and the recent REIT sector slide also gives investors expected rental yields despite the challenges of pedestrian rental gains growth and the effect of the expected slower economic recovery. While interest rates and inflation have driven investor behaviour — prompting a temporary shift to less risky fixed income alternatives — longer term, investors say REITs, especially retail and township-focused, still offer the greatest potential in an inflation-controlled and recovery environment.

Industrial REITs remain the best favoured, as high e-commerce share supports their asset values and warehouse space in the Klang Valley remains highly sought after. “With a robust industrial sector, the demand for logistics and storage facilities will outstrip supply in the next 3-5 years,” observes Areca’s Danny Wong, adding that the manufacturing, e-commerce, and retail sectors will continue to drive demand.

Nonetheless, limited overseas investments and increased competition for foreign direct investment in the country could stunt sustained economic activity, said one fund manager, pointing to the recent rise in foreign investor outflows. According to Bursa data, the weighted average lease expiries of four to five years, offering earnings viability and insulating them from near-term tariff risks.”

Additionally, Bank Negara’s pause in interest rate hikes for now provides tentative firmness for yields in the coming year. “With central banks moving to keep rates on hold or potentially lower them, REITs should see improved valuations going forward,” says MIDF’s Dr. Nazri.

Analysts also point out that the risk for REIT units is thin, overshadowed by their typically defensive nature in an economic slowdown. “Most REITs posted better-than-expected quarterly earnings and valuations are still attractive,” says Fortress Capital’s Yong.

According to the REIT Association of Malaysia, the sector is now worth more than RM40 billion ($8.4 billion) in market capitalisation, which could see further upside if foreign inflows return. For now, the sector is expected to outperform other yield-based investments as investors position themselves defensively against global uncertainty.

The Malaysian REITs sector remains stronger than it was five years ago — and upside remains.

More than half of Malaysian REITs have yields above 5%