Malaysian REIT earnings growth to moderate in 2027 as focus shifts to rentals and occupancy: RHB
RHB Research expects Malaysian REIT earnings growth to slow in 2027 as recent acquisitions enter the comparison base, shifting focus to rental increases and occupancy gains. The research house maintained an 'Overweight' rating on the sector, citing resilient earnings and stable yields despite rising
PETALING JAYA (Oct 20): Earnings growth among Malaysian real estate investment trusts (REITs) is expected to moderate in 2027 as recent acquisitions enter the comparison base, putting greater emphasis on rental increases, occupancy improvements, asset enhancement initiatives and further acquisitions, according to RHB Research.
The research house maintained its "Overweight" rating on the sector, citing resilient earnings, stable occupancy rates and attractive distribution yields despite rising bond yields and broader economic uncertainties, New Straits Times (NST) reported on Tuesday (Oct 20). REITs under RHB's coverage recorded revenue growth of about 15 per cent and earnings growth of around 17 per cent in the first half of 2026 compared with the corresponding period last year, partly supported by IGB REIT's acquisition of Mid Valley Southkey.
In a January sector report, RHB said the acquisition was completed in November 2025, allowing IGB REIT to recognise a full-year contribution from the mall in 2026. The research house attributed the recent decline in REIT valuations largely to broader market conditions rather than a deterioration in underlying operating performance.
Pavilion REIT provides an example of how asset enhancement could support earnings growth without relying entirely on property acquisitions. In July, The Star reported that space vacated following Parkson Elite's downsizing at Pavilion Kuala Lumpur was earmarked for reconfiguration into 37 smaller retail lots catering to fashion and food and beverage tenants. Citing CIMB Research, the report said management expected the mall's occupancy rate to recover to between 95 per cent and 96 per cent by year-end, from approximately 92 per cent at the time. The same July report said RHB had identified two further phases of asset enhancement involving approximately 25,000 sq ft through 2027 to accommodate international flagship brands.
For industrial REITs, acquisitions and property development remain important drivers of earnings expansion. RHB identified Axis REIT as one of its preferred stocks, supported by its industrial property portfolio and acquisition prospects. In its July 31 assessment, the research house highlighted approximately RM456 million in acquisitions and development projects scheduled for completion between the second half of 2026 and the fourth quarter of 2027. According to NST's latest report, RHB also identified at least RM250 million in additional opportunities under consideration. The available reports do not establish whether these overlap with the previously reported pipeline.
The research house expects industrial REITs to benefit from further demand for industrial space in Johor, supported by the proposed Johor–Singapore Special Economic Zone blueprint. RHB also expects Budget 2027 measures involving household assistance, tourism and investment incentives to support consumer spending and business activity, according to NST. The research house said enhanced Global Services Hub incentives could support demand for higher-quality office space. In a separate Oct 17 report, Bernama said RHB highlighted improvements to the incentive framework aimed at attracting regional headquarters, treasury centres and shared-services operations. The extent to which these measures translate into stronger office occupancy and rental growth will depend on actual business expansion and leasing commitments.
Despite the positive operating outlook, higher financing costs could weigh on REIT earnings and distributions. RHB expects Bank Negara Malaysia to raise the overnight policy rate by 25 basis points in the first half of 2027, according to NST. The research house's sensitivity analysis indicated that a full-year increase of 25 basis points in borrowing costs could reduce the sector's forecast earnings for financial year 2027 by up to 2 per cent, an impact it considered manageable. Other risks include narrowing dividend yield spreads, higher-than-expected inflation and prolonged increases in energy prices. RHB retained Axis REIT and Pavilion REIT as its top picks, with target prices of RM2.44 and RM2.18 respectively.
