KUALA LUMPUR: The emergence of the Omicron variant may derail the recovery path of the Malaysian real estate investment trust (REIT) sector in 2022.

In light of this, RHB Investment Bank Research is projecting a cautious outlook for local REITs this year.

“Although we can expect a gradual recovery for Malaysian REITs in general, especially in terms of earnings and unit prices, they present an unexciting avenue for yield play.

“We maintain our sector weighting, as the risks at this point are rather high.

“We also highlight that shopping malls and office buildings will be among the first to be adversely impacted if Covid-19 infections rise again and lockdown measures are re-imposed.”

Other than the severity of Covid-19 cases, RHB said daily infection rates have remained high.

“The reception of booster shots nationwide has been relatively soft, which proves particularly worrisome in light of the emergence of the Omicron variant.

“With the government having retracted plans of treating Covid-19 as endemic, we choose to remain cautious in our outlook for the sector.”

Going forward, the research house said the office and industrial segments will demonstrate resilience.

“That said, we are cautious of the prospect of non-renewals for the office segment, as we gather that demand for renewals has been soft due to the work-from-home trend.

“Although we remain cognisant of the supply glut in the office segment, the demand for office space in general is here to stay.”

RHB emphasised that there has been an increasing demand for industrial properties, especially in light of the e-commerce boom since the start of the pandemic.

“The new normal is seeing consumers resorting to online means for shopping, leading to higher demand for warehousing.

“REITs that intend to diversify their asset portfolios are looking to acquire industrial assets for stable income growth and gross yields of around 7%.”

RHB added that the hospitality sector could potentially continue to face challenges.

“Pressure on average room and occupancy rates will remain for as long as movement restrictions are in place.”

RHB pointed out that relaxed interstate movement controls and pick-up in staycation promotions have not actually translated to meaningful recoveries for hotels owned by REITs under its coverage, within the past 20 months.

“Corporate bookings for events, which also make up the bulk of a hotel’s topline, have also been on a downtrend, as mass gatherings are prohibited.

“We expect to see only a mild pick-up in corporate bookings, as virtual meetings and events are here to stay.

“We believe the challenging operating environment for hotels is also further exacerbated by the threat of alternative accommodations being made available,” it said.

Source: The Star, January 14, 2022