Retail REIT to continue outperform office REIT this year
Published on: Saturday, January 24, 2015
Kuala Lumpur: Hong Leong Investment Bank (HLIB) expects retail real estate investment trust (REIT) to continue outperforming office REIT this year given the pricing power and higher rental income potential from positive rental revision.HLIB, in a research note today, said strong rental revision for retail REITs would be underpinned by sustained consumption growth, albeit at a slower rate, in the country."While GST will be a dampener for retail REITs, we see no significant impact as the government has broadened the list of items in the zero-rated and exempt supplies," it said.ADVERTISEMENT On office REIT, it said the supply glut for office space in Kuala Lumpur is far from over and upcoming mega projects will create further dent on the problem."The supply glut for office space in the Klang Valley may result in rental rates for offices to grow at a slower pace or stagnate," it said.Meanwhile, on industrial REIT, HLIB said it maintained a "neutral" view with a positive bias on the industrial REIT given its softer rental reversion and limited supply coming in the market.The investment bank said other key risk that could dampen the sector included a bullish equity market, improvement in the US economy leading to a rise in US interest rates and a significant slowdown in economic activities dampening rental reversion for industrial REIT.ADVERTISEMENT "The REIT sector could underperform in a bullish market as investors would prefer stocks which give higher capital appreciation," it added.HLIB said an aggressive monetary policy by Bank Negara Malaysia might also cause interest rates to increase thus making REIT less attractive.
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However, it said in view of the subdued household financing activities and rising downside risks to domestic growth momentum, BNM was expected to maintain an overnight policy rate at 3.25 per cent for the rest of the year."Hence, in a positive note, we perceive the current economic situation as favourable for the REIT sector," it added. – Bernama