Malaysian real estate investment trusts (M-REITs) are shaping up as one of the more compelling asset classes heading into 2026, supported by a confluence of macro, policy and sector-specific tailwinds. According to Hong Leong Investment Bank, the outlook for M-REITs remains constructive, particularly for investors seeking income stability in a moderating interest rate environment.
While equity markets continue to grapple with valuation dispersion and earnings uncertainty, REITs stand out for their yield visibility, defensive characteristics and leverage to domestic economic activity — especially tourism and manufacturing.
Lower interest rates underpin REIT valuations
One of the strongest supports for M-REITs heading into 2026 is the interest rate backdrop. The overnight policy rate cut in mid-2025 marked a turning point for yield assets, and expectations of a more accommodative stance have improved sentiment towards REITs.
For REITs, lower interest rates matter in two key ways. First, borrowing costs decline, directly improving distributable income, especially for trusts with higher gearing. Second, lower bond yields enhance the relative attractiveness of REIT dividend yields.
HLIB noted that M-REIT yields are currently trading about 0.6 standard deviations above their five-year average relative to 10-year Malaysian Government Securities. From an investor perspective, this reinforces the income appeal of the sector, particularly for portfolios focused on steady cash flow rather than aggressive capital growth.
Tourism revival lifts retail and hospitality REITs
A major catalyst heading into 2026 is the Visit Malaysia 2026 (VM2026) campaign, which is expected to boost tourist arrivals, retail spending and hotel occupancy.
Retail and hospitality REITs are likely to be the biggest beneficiaries. Malls in prime urban and tourist-centric locations typically see stronger footfall during tourism upcycles, while hotels benefit directly from higher room rates and occupancy levels.
HLIB highlighted the importance of Chinese tourists, who account for roughly 20% of Malaysia’s tourism receipts. This segment is particularly valuable as Chinese visitors tend to stay longer and spend more per day compared to regional averages. REITs with exposure to destination malls, integrated developments and city hotels stand to gain disproportionately from this trend.
For investors, this reinforces the idea that not all REITs will benefit equally. Asset quality, location and tenant mix will increasingly determine performance as tourism demand returns in a more targeted manner.
Industrial REITs remain structurally strong
Beyond tourism, the industrial REIT segment continues to be one of the most resilient performers in the M-REIT universe. Occupier demand remains robust, underpinned by sustained manufacturing investments and Malaysia’s positioning within regional supply chains.
Policy initiatives such as the New Industrial Master Plan 2030, the National Energy Transition Roadmap and the Government-Linked Enterprises Activation and Reform Programme (GEAR-uP) are providing structural tailwinds for industrial and logistics assets.
For investors, industrial REITs offer a different value proposition compared to retail and hospitality. Rental income is typically more stable, lease tenures are longer, and exposure is tied more closely to manufacturing and trade flows than consumer sentiment. In a diversified REIT portfolio, industrial assets play a crucial role in smoothing earnings volatility.
Office segment stabilising, but supply bears watching
The office REIT segment is showing signs of stabilisation, though challenges remain. According to HLIB, office supply growth in 2025 was relatively manageable at 1.3%, helping occupancy levels to steady.
However, the pipeline for 2026 is larger, at around 2.7%, which could trigger tenant relocations rather than net new demand. This suggests that office landlords will need to compete more aggressively on quality, sustainability features and transit connectivity.
For investors, office REIT exposure should be selective. Assets that are ESG-compliant, well-located and aligned with occupiers’ evolving requirements are more likely to defend occupancy and rental levels. Older, non-competitive buildings may continue to face structural headwinds.
Policy support eases tenant pressure
Another supportive factor for the REIT sector is policy intervention aimed at easing cost pressures on businesses. The reduction in service tax on rentals to 6% from 8% effective January 2026 is expected to provide some relief to tenants, particularly in retail and commercial segments.
While the direct financial impact on REITs may be modest, the broader implication is positive. Lower operating costs improve tenant sustainability, reduce default risks and support occupancy levels, all of which underpin stable distributions for REIT investors.
Additionally, government cash aid programmes are helping to support household consumption, indirectly benefiting retail tenants and, by extension, retail REIT performance.
Performance momentum and investor appetite
M-REITs outperformed the broader market in 2025, with the REIT Index rising 8.3% compared to a 2.3% gain in the FBM KLCI. This outperformance was driven by the interest rate cut and a rotation towards defensive, income-generating assets.
For many investors, this shift reflects a broader reassessment of risk and return. In an environment where capital gains may be harder to achieve, predictable income streams regain importance.
HLIB’s continued ‘overweight’ stance on the sector reflects this view, with Sunway REIT and Pavilion REIT highlighted as top sector picks due to their asset quality, earnings resilience and exposure to tourism-driven recovery.
The takeaway for investors
As Malaysia moves into 2026, M-REITs sit at the intersection of lower interest rates, recovering tourism and ongoing industrial investment. While challenges remain in certain sub-sectors, particularly offices, the overall sector fundamentals appear supportive.
For investors, the key will be selectivity. REITs with high-quality assets, strong balance sheets and clear exposure to structural growth drivers are likely to outperform. In a market increasingly defined by relevance rather than resilience alone, Malaysian REITs continue to offer a compelling blend of income, stability and targeted growth potential.
