The forecast for Malaysian real estate investment trusts (MREITs) is still gloomy, and more space is anticipated to exacerbate the oversupply conditions.
The increase in foreign visitors seems to be a bright spot that may benefit some REITs, and the strong labour market will support sustained domestic spending.

According to Kenanga Research, despite difficult market fundamentals including ongoing oversupply, particularly in the commercial office sub-sector, there are some obvious pockets of strength in carefully chosen retail space and the hardy industrial segment.

"We anticipate continued pressure on the occupancy rates for both the purpose-built office space and the retail segment. More supply is anticipated to come onstream against the backdrop of the existing overhang.

According to a report released yesterday by the research firm, "on the demand side, following the full resumption of economic activities post-pandemic, the take-up rate for office and retail spaces will likely be muted amid the current jittery economic prospects and elevated inflation worries."
Recent data from the National Property Information Centre (Napic)'s 2022 Property Market Report revealed a purpose-built office space occupancy rate of 78.5%, which is a little decrease from 78.9% at the end of 2021.

The occupancy rate for retail space in shopping centers was 75.4% as of the end of 2021 as opposed to 76.3% at that time. As more supply is anticipated to enter the market, Napic predicted that the oversupply scenario would not likely improve "anytime soon."
In terms of purpose-built office space, an extra 1.53 million square meters are being built, and 0.99 million square meters are related to projected supply (where building plan approvals have been acquired), which together will make up 10.4% of the current supply.
Retail space in shopping centers may increase by 1.38 million square meters (from ongoing construction) and 0.35 million square meters (from the planned supply), or an additional 9.9% of the current supply.

Unsurprisingly, Kenanga Research has a "neutral" opinion of MREITs, but it does prefer REITs that specialize in the industrial and retail sectors, particularly those that have real estate assets in advantageous locations that continue to generate steady streams of rental income.
With a target price (TP) of RM1.43, Pavilion REIT is its top choice based on value.
According to MIDF Research, retail sales grew at a year-over-year rate of 21.7% in January, maintaining double-digit growth for the 12th straight month, amid worries about inflation and declining purchasing power.

Pent-up demand and policy support through actions like Employee Provident Fund withdrawals helped to some extent. The real growth in retail expenditure "recorded a double-digit surge
since April 2022 in line with the reopening of the economy," it said. "Even if we deflated the
The monthly retail sales in January were close to RM60 billion in value and surpassed the pre- pandemic high of RM47.8 billion in December 2019.

MIDF Research maintained its favorable outlook for MREIT, particularly those with exposure to retail and hotels, as inbound visitor numbers increased as a result of the reopening of international borders. IGB-REIT and Sunway-REIT, both with target prices of RM1.86 and RM1.73, are among its top "buy" picks.
"Mid Valley Megamall and The Gardens Mall have great occupancy rates, which is why we like IGB-REIT. We also prefer Sunway-REIT since earnings from the retail and hotel segments are anticipated to be strong in the fiscal year 2023, supporting earnings growth, according to the research firm.