Growth Opportunities in REITS Niche Sectors, ‘NEUTRAL’ Call Maintained : RHB Research


The research house has maintained a “NEUTRAL” call on the REITS. Moving forward, the focus on quality will be essential for offices and malls. The Top Picks of REITS are AXIS REIT and IGB REIT

The research team hosted a talk with Knight Frank’s executive director of research and consultancy, Amy Wong recently with the focus on emerging trends for the property sector, as well as touching on growth opportunities of niche sectors such as workers’ accommodation and data centres – in line with their positive view of the industrial segment.

Industrial segment likely to have the sector’s highest rental growth in the coming years, driven by the rapid growth in e-commerce. Infrastructure investments are key to underpin the segment’s growth, and Malaysia ranks third behind Singapore and Vietnam as the logistics hub of choice in South-East Asia. A few notable multi-national corporations (MNCs) have chosen Malaysia to be their Regional Distribution Centres including IKEA, Lazada, Nestle, and BMW. Logistic facilities with smart systems such as automated storage and retrieval systems (ASRS) will be able to command a higher rental rate.

Workers’ accommodation, an emerging sector. Given the increasing emphasis on ESG of worker wellbeing and resilient industrial development,workers’ accommodation provides a strategic diversification opportunity. Existing purpose-built workers’ accommodation (PBWA) are predominantly owner-operated, but there are various partnership models to be explored between owner-operator model and triple net lease to dormitory operator, depending on the preferred level of distinction between ownership and operation. The yield for this segment is estimated at around 7-9%.

Insufficient power infrastructure to support development of data centres. The major Asia-Pacific data centre markets have an average capacity of 35.7MW per mil capita, compared to only 5.0MW for Malaysia. While this suggests potential for growth, the limited number of data centres in Malaysia is largely due to insufficient power and water supply infrastructure in the country. However, rental rate psf for data centres could be much higher compared to the rate for conventional industrial properties.

Focus on quality for offices and malls. Despite the WFH trend over the past two years, offices are still important to companies for a corporate image. Landlords that are successful in reinventing their office space with better collaboration space and flexibility will likely attract more tenants. For retail, anchor malls in the Klang Valley will continue to remain relevant, with the rise in e-retailing having a more negative impact on mid-sized malls. Compared to Lalaport, Pavilion Bukit Jalil mall seems to have better prospects given its design, location, as well as the strength of its leasing team.

Hospitality assets could be repurposed. The trend to repurpose struggling assets and bring them to relevance is already apparent across Asia. Some hotels in Korea, Hong Kong, and Japan have successfully transformed into residential/co-living or office buildings. Kuala Lumpur is also seeing this trend, such as Wisma KFC (from office to hotel) and Wisma HLX (from office to co-working & co-living space).

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