Hong Leong Investment Bank Bhd (HLIB) maintained its NEUTRAL call on the REIT sector, saying earnings growth will become the key driver after tax-related concerns were largely priced in, while naming Axis Real Estate Investment Trust (AXREIT) and Pavilion Real Estate Investment Trust (PAVREIT) as its top picks with BUY calls and target prices of RM2.16 and RM1.97 respectively.
HLIB said the sector remains attractive as a defensive play ahead of possible market volatility from an early GE16, while potential inclusion of some REITs into the expanded FBM KLCI could provide further upside.
The research house said the impact from the expiry of the 10% withholding tax concession has been largely reflected in valuations after the KL REIT Index fell to a year-to-date low in April before recovering.
Retail REITs are expected to remain supported by steady consumer spending, with retail trade growth reaching 6.3% year-on-year in April 2026 compared with 4.7% a year earlier. HLIB expects this momentum to continue into 2H26, supported by stable interest rates and fuel subsidies that help preserve household spending power.
For hospitality assets, the brokerage expects leisure tourism recovery to support earnings as international arrivals continue improving, although MICE-related properties may face slower recovery due to corporate event delays linked to geopolitical uncertainty.
HLIB also expects premium office assets to outperform as occupancy improves, while industrial REITs could benefit from rising demand for modern logistics facilities and data centre-related assets.
