Tuesday 03 Oct 2023
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This article first appeared in The Edge Malaysia Weekly on February 13, 2023 - February 19, 2023

AFTER two years of closure and mobility restrictions during the Covid-19 pandemic, Malaysia fully reopened its borders to foreign tourists last April. About a month later, the country scrapped the mandatory wearing of masks outdoors. In September, it made indoor masking optional.

Since then, Malaysian real estate investment trusts (M-REITs), especially the retail-oriented ones, have been benefiting from the economic recovery. Visitor footfall at most shopping malls has recovered to — and, in some cases, surpassed — pre-pandemic levels, thanks to intense pent-up demand, with many people happily going out to indulge in revenge spending with the restoration of their freedom.

Now, add in one of the most anticipated economic catalysts this year: the great reopening of China after its strict zero-Covid policy. Will this be a game changer for M-REITs? Which sub-sector will benefit first, and the most? The Edge asks captains of industry and equity experts.


Since the country transitioned to the endemic phase, all REIT sub-sectors have benefited from the economy’s reopening, according to Malaysian REIT Managers Association (MRMA) chairman Datuk Philip Ho Yew Hong.

“The strong recovery was underpinned by domestic consumption and festive spending. Malaysian REITs such as Pavilion REIT, IGB REIT and Sunway REIT performed well overall, based on their recent respective results,” he says.

Strong retail footfall recovery has even driven retail sales to surpass pre-pandemic levels, says Ho. “With the reopening of China’s international border, we believe the retail M-REITs will record a better performance with higher footfall in malls, as more inbound tourists are expected from China.”

MRMA represents 18 listed REITs and two unlisted ones, as well as five associate members.

Besides retail REITs, Ho says hospitality REITs and the consumer products, travel and tourism, and education sectors are also likely to benefit from China’s reopening. The lifting of travel restrictions the world over will ease the global supply chain, thus reducing inflationary factors.

“Travel recovery in Malaysia, alongside China’s reopening this year, will be a key catalyst to revive the tourism sector as well as the economy in 2023,” he predicts.

Hektar REIT CEO and executive director Johari Shukri Jamil says new openings are outpacing store closures, which were commonly seen during the pandemic.

“As long as malls continue to fulfil their needs and take care of the basic necessities and concerns of their target customers, these are determining factors that will draw shoppers to frequent malls and cement the role of the shopping centre, ensuring the continued survival of the retail industry,” he says.

Johari says Malaysia’s retail landscape has shown steady post-pandemic recovery and its positive effect is evident across Hektar REIT’s portfolio, which comprises five neighbourhood-focused malls and one regional shopping mall.

“The shopping malls recorded a higher footfall and higher vehicle count, which was in tandem with the continuous improvement in tenants’ sales performance at our malls, providing headroom for rental growth,” he elaborates.

According to Retail Group Malaysia (RGM), retail sales in Malaysia jumped 96% year on year in the third quarter of 2022. The expansion of retail sales was unprecedented, while 2023’s growth is expected to come in at 3.5% as the industry normalises.

KIP REIT managing director Datuk Eric Ong Kook Liong says the REIT’s seven community-centric KIP Malls are premised on the concept of a one-stop centre that caters for the lifestyle and daily needs of communities. Therefore, its malls have been seeing higher consumer foot traffic and larger sales volumes since the reopening of the local economy.

“Lease occupancy across our portfolio has steadily increased, with our average occupancy rate recorded at 91.7% as at end-December 2022, which translates into a 4.2% increase in average occupancy rate in comparison to December 2021,” he says.

Ong is optimistic that China’s post-pandemic tourist numbers will be higher than pre-pandemic ones, spurred by pent-up demand for travel, which will lead to increased spending.


MRMA’s Ho says the hotel segment gained traction on the steady recovery in domestic tourism, while meetings, incentives, conventions and exhibitions (MICE) activities gradually resumed after a two-year hiatus.

He acknowledges, however, that the number of international travellers visiting Malaysia has yet to return to pre-pandemic levels, owing to entry restrictions, reduction in flights and premium flight fares.

In 2023, the government is aiming for more than 15 million foreign tourists, with a projected revenue of RM47.6 billion.

Hektar REIT’s Johari says the recovery in consumer-related sub-sectors, including leisure, international tourism and hospitality, continues to benefit the overall performance of the retail industry.

“Certainly, tourists from China will add to the growth momentum in retail sales and the hospitality market. Before the pandemic, China tourists were Asean-6 countries’ largest source of arrivals as they took 27 million trips and contributed about US$32.4 billion in tourism receipts to Asean-6 in 2019. In fact, China was Malaysia’s third-biggest tourist source country after Singapore and Indonesia,” he says.

While retail REITs have been the biggest winners since the reopening of the local economy, Maybank Investment Bank equity analyst Nur Farah Syifaa says hospitality REITs have also shown improvement in terms of occupancy, even though they rely mostly on domestic tourists.

Physical events, such as product launches and company shareholders’ meetings, which are a main source of income, “are also gradually coming back, which partly explains why some hospitality REITs are seeing improving profits, despite seeing lower occupancy rates as compared to pre-pandemic levels”, says REIT industry observer Chia Wan Chow.

But nothing will provide as great an earnings boost as the return of Chinese tourists. “This will translate into higher rental income to REITs from higher occupancy, retail footfall and retail sales,” says Nur Farah.

Indeed, most countries are desperate for China’s outbound tourists. “The 250 million travellers from China will provide an immediate consumption and spending boost to the global economy. Malaysia, which has always been one of the main destinations for Chinese travellers, is no exception. We have even witnessed our own tourism, arts and culture minister greeting tourists at the airport, which was unheard of in previous years. Nevertheless, I believe retail REITs will still lead the way, followed by hospitality,” says Tradeview Capital Sdn Bhd founding CEO Ng Zhu Hann.


Although workers have returned to the office from the second quarter of 2022, following the transition to endemicity, the office space market continues to face an oversupply — one that started way before the pandemic.

Nevertheless, MRMA’s Ho believes the full reopening of economic activities has improved business sentiment, and that the resumption of work in physical offices has yielded positive effects for the office segment, in particular the offices in Klang Valley, with its great connectivity and amenities.

“The worst is over. With a new government in place, the nation’s capital markets and economy will gain confidence, and foreign investors will be encouraged to invest. This should be beneficial to the office sector. We expect gradual improvement in occupancy levels and rents moving forward, in tandem with economic improvements and investor-friendly policies from the government,” he says.

Axis REIT Managers Bhd CEO and executive director Leong Kit May notes that its office assets, including Crystal Plaza, are performing satisfactorily.

“We managed to boost Crystal Plaza’s occupancy rate to about 92%, as we managed to contract out 45% of the space since the middle of last year. Quattro West is fully occupied,” she says. Office-related assets account for less than 5% of Axis REIT’s portfolio.

Although the market for KL offices remains favourable to tenants, Maybank IB’s Nur Farah observes that supply growth continues to outpace demand, thus rental rates and occupancy levels are expected to experience further downward pressure.

“We continue to like office segments with long-term tenants and triple net leases, which are more stable, such as KLCC Stapled Group,” she says.

Tradeview Capital’s Ng says commercial stratified properties such as Sohos are eating into traditional office spaces. With the rise of the work-from-home culture and co-working space trend, coupled with technological advancements that make remote working a viable alternative, the office space glut is probably not going away anytime soon.

“Personally, office space REITs are completely beyond my consideration as their mid-term prospects remain dim. We have seen names like Sentral REIT and IGB Commercial REIT continuing to significantly underperform the market and their peers over the past year. Our team avoids office REITs, be it locally or regionally,” Ng adds.

Says Chia: “Employees might be gradually going back to the office, but hybrid working is here to stay. Now that we are seeing more new office buildings being completed, the oversupply could get worse.”


Since the outbreak of Covid-19, industrial REITs have fared better than their retail, hospitality and office peers, given that manufacturers in essential industries, together with logistics players and warehouses — key beneficiaries of the e-commerce boom — were still operating during the lockdowns.

Has this narrative changed since the reopening of the economy and international borders?

Axis REIT’s Leong believes industrial REITs will continue to do well because the global e-commerce business is still booming, marking a new way of life post-pandemic.

“The global e-commerce platform had been expanding even before 2020. The pandemic merely acted as a catalyst in accelerating its growth. Fundamentally, industrial REITs are crucial elements of both the manufacturing and logistics industries. Their properties, whether manufacturing factories or warehouses, serve as the backbone of their operations and tend to have much more stable and better long-term prospects than other commercial assets,” Leong explains.

Now, this REIT sub-sector could be a possible beneficiary of new business operations or expansions by the Chinese to Malaysia.

“This would reflect the revival of interest from China-based companies in setting up in Malaysia. Prior to the reopening, this was significantly hampered by the halt in activities and movement of Chinese citizens overseas,” she says.

“The reopening will feed global economies’ demand for supplies, which has been pent up over the last few years.” Leong adds that the ripple effects will be great as Malaysia is a recognised global manufacturer and very much involved in the global supply chain.

KIP REIT’s Ong also expects the demand and growth of industrial properties to remain strong, backed by solid rental yields.

“KIP REIT had already stepped into the industrial property space in July 2022 with the acquisition of three industrial properties in Pulau Indah, Klang. The acquisitions were completed in December. KIP REIT intends to further broaden its reach in the industrial space and is considering acquiring more value-accretive industrial assets that would generate healthy long-term distributions to its unitholders. We hope to be able to grow our portfolio within this space,” he says.


MRMA’s Ho is optimistic that the healthcare industry will continue to play an important role in the country’s economic recovery.

“As a result of increased awareness of mental and physical healthcare, and a shift in focus from hospitalisation to preventive care, there should be continued demand for healthcare services. Furthermore, a strong resurgence in elective medical procedures and the recovery of the health tourism sector are expected to benefit healthcare REITs,” he says.

KPJ Group, the sponsor of Al-‘Aqar Healthcare REIT, has seen a resurgence in elective medical procedures and a recovery in the health tourism sector.

According to Al-‘Aqar CEO Raja Nazirin Shah Raja Mohamad, the REIT’s future earnings are underpinned by its long-term lease arrangements with KPJ Group.

“The transformation in the healthcare industry is expected to provide wider opportunity for Al-‘Aqar to be a lucrative fund capable of generating positive returns and long-term growth investments by having various diversification plans, including asset classes, tenants and geographical presence,” he says.

With the increasing risk of a recession in the US, Raja Nazirin believes China’s reopening is timely to provide some cushioning, while helping to further ease global supply chain pressures. Moreover, a stronger yuan from the reopening bodes well for the ringgit.

“Not only are the Chinese an important segment for Malaysia’s tourism, but they are high-value tourists. We are expecting a positive impact on REITs, although the momentum will vary among the sub-sectors. Significant impact will be on the retail, hospitality and healthcare REITs, the industries with higher exposure to tourism,” he adds.

See also “Investing in REITs in an inflationary environment” on Page 36.

Read also:
Are the stars finally aligned for Tiong Nam’s warehouse REIT spin-off? 
Investing in REITs in an inflationary environment

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