SINCE the start of the year, several real estate investment trusts (REITs) have announced the acquisition of new assets to bump up their portfolios.
Among them include KIP-REIT, which announced in May that it intends to acquire the DPulze Shopping Centre in Cyberjaya for RM320mil.
In April, Axis-REIT announced that it is proposing to acquire an industrial complex and an open storage yard in Klang, Selangor for RM351.8mil.
The following month, it announced that it would be acquiring two properties in Selangor from Cycle and Carriage Bintang Bhd for a combined value of RM125mil.
Earlier, in February, CapitaLand Malaysia Trust said it would be acquiring three prime freehold ready-built factories at the Nusajaya Tech Park in Iskandar Malaysia, Johor for a combined RM27mil.
In February also, YTL Hospitality-REIT announced it was acquiring Syuen Hotel in Ipoh, Perak for RM55mil.
Meanwhile, in January, Sunway-REIT announced that it had acquired 163 Retail Park in Mont Kiara, Kuala Lumpur for RM215mil.
Are these acquisitions a sign of improving conditions and better times ahead?
Rahim & Co International Sdn Bhd real estate agency chief executive officer Siva Shanker admits that times have certainly improved, especially since the pandemic.
Nevertheless, he explains that it’s actually a normal practice for REITs to acquire new assets.
“REITs are like sharks in the water. Many kinds of sharks have to keep moving or else they will die.
“Similarly, REITs need to keep moving, making decisions quickly to reap the benefits of their investments,” he tells StarBizWeek.
Moreover, Siva acknowledges that the market has picked up this year for REITs in general.
“REITS are doing well this year. Most are doing extremely well. Property is a long-term investment and REITs reinforce that mantra by gradually acquiring new assets,” he says.
Going forward, Siva expects more acquisitions by local REITs.
“We are lucky that our REITs are professionally managed by those who are careful to acquire good assets; and they need to continue doing that.”
TA Research in a report says industrial properties continue to be in high demand.
“It is anticipated that there will be a sustained high demand for industrial properties and land. Regional logistics and warehousing are becoming increasingly important as the demand for last-mile delivery facilities, eCommerce retailing and consumer products continues to grow.
“Acquisitions in this space will likely continue to be strong, as the REITs we cover have stated their plans to expand their portfolio in the industrial property sector.”
Siva acknowledges that interests in industrial REITs have picked up significantly in the past four to five years, especially during the pandemic.
“A decade ago, industrial-property investments were considered not sexy. They were deemed to be stable but boring rather than high-return investments.
“But in the last four to five years, everyone has been jumping on the industrial-property bandwagon.”
As such, Siva cautions that if this trend continues, supply of industrial space may eventually end up outstripping demand.
“The industrial segment is close to equilibrium. By that, I mean demand and supply are as close as possible.”
During good times, Siva says residential property prices could surge by as much as 30% in a year.
This, he says, is not the case in the industrial sector.
“Demand is quite inelastic within the industrial segment, in that it doesn’t change drastically.
“But if demand remains the same and supply goes upwards, there will be a bit of a risk.”
For retail REITs, TA Research says this segment has been resilient.
“Looking ahead into the second half of 2024, the Malaysian economy is projected to maintain its strength, driven by robust domestic economic activity and a recovering export sector.
“This positive trajectory bodes well for the retail segment, which is expected to thrive with sustained improvements in footfall and sales.”
The research house says the impending salary increase for civil servants, the pick-up in tourist arrivals and strong employment market are expected to support consumer spending in the coming quarters.
“The supply of retail malls in Malaysia is set to increase further in 2024. While this will introduce new competition, these new malls are expected to enhance the variety and quality of retail offerings, thereby strengthening Malaysia’s position as a premier retail destination.
“The recent introduction of the Employees Provident Fund’s Account 3, or Flexible Account, which allows for withdrawals at any time for short-term financial needs, is anticipated to benefit members and, in turn, encourage consumer spending. Meanwhile, growing tourist arrivals should also bode well for retail performance.”
Nevertheless, industry insiders from the segment are maintaining a cautious outlook for the remainder of the year.
Last month, Malaysia Shopping Malls Association president Phang Sau Lian told StarBizWeek that headwinds could persist, especially in light of the government’s planned rationalisation of petrol subsidies, which may impact consumer spending power and overall economic sentiment.
Additionally, Retail Group Malaysia in its latest industry report says it has revised downward its growth forecast for the sector this year to 3.6% from 4%, acknowledging that the rising cost of living will impact Malaysian consumers from all income groups.
Commenting on retail REITs, Siva says many players have stuck to Grade A shopping centres. “Meanwhile, those with suburban shopping centres have remained in this sub-segment for years and have been reaping stable returns.”
As for office REITs, Siva says players within this segment have invested in offices within good locations with high occupancy levels.
“There aren’t that many office assets that can be bought right now as there is still low demand in light of the oversupply situation in the country,” he says.
Separately, TA Research says robust tourism will bode well for REITs within the hospitality sector.
“The growth in visitor numbers is anticipated to be significantly influenced by the increasing number of tourists from China and India. This can be attributed to the enhanced flight connectivity and the resumption of flights to North-East Asia.
“In addition, implementing a 30-day visa-free entry starting from Dec 1, 2023 for visitors from China, India, Turkiye, Jordan, Saudi Arabia, Qatar, the UAE, Bahrain, Kuwait, Iran and Iraq is anticipated to significantly boost Malaysia’s tourism industry.”
The research house says it anticipates a surge in hotel occupancy rates and average daily room rates within the hospitality sector throughout 2024, propelled by increased demand for domestic leisure, corporate functions, and meetings, incentives, conferences and exhibitions events.”
For the remainder of the year, Maybank Investment Bank Research believes that the gradual return of international tourists will sustain demand for retail space and hotel occupancy rates.
“We like prime retail malls which are located in prominent locations such as Suria KLCC, Pavilion KL and MidValley Megamall, which entail high shopper traffic and high demand for retail space. Meanwhile, we expect rental rates of industrial assets to grow due to healthy demand.
“We are still cautious on the office-space Rmarket due to oversupply, with the exception of KLCCP Stapled Group, which is largely backed by long and triple net lease agreements.”
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