Despite the growing supply of retail and office space, Malaysian real estate investment trusts (REITs) are still expected to post an average distribution yield of 6.3 percent this year, up from the five to six percent registered in 2016, said Datuk Jeffrey Ng, chairman of the Malaysian REIT Managers Association (MRMA).
He noted that prices of Malaysian REITs have been performing well since late-2016 but uncertainties loom ahead.
Aside from global and national concerns, the growing supply of retail and office space is also an issue among REITs.
In Q3 2016, the total existing stock of retail space in purpose-built retail centres is at 59.89 million sq ft, while average occupancy rate stood at 80.1 percent, said Ng.
Exacerbating the oversupply situation, several large malls were also completed in late-2016 and some are expected to be completed this year.
“The outlook for 2017 remains challenging…Consumers will continue to stay cautious in their spending and retail sales growth is expected to be modest in the short term,” said Ng.
This will impact rental, and eventually retail REITs.
Nonetheless, Ng expects leading regional malls with good tenancy mix and strong track record to remain resilient due to their captive market.
Over at the office space front, a huge incoming supply of around 13.32 million sq ft is slated for completion by end-2018, taking the total stock in the Klang Valley at over 100 million sq ft.
In Q3 2016, existing office stock was at 114.4 million sq ft, revealed Ng, who expects demand for office space to be limited in the short term.
According to him, the disequilibrium between supply and demand for office space will unlikely be resolved in the absence of a strong catalyst that would put further pressure on rental and occupancy rates in a highly challenging environment, especially for older buildings.
As such, Ng advices older building owners to upgrade their properties in order to manage attrition and occupancy rates.
But even if upgraded, property yield is still expected to “remain lacklustre with owners possibly seeking alternative use for these buildings,” said Ng.
Image sourced from Getty Images
Diane Foo Eu Lynn, Senior Content Specialist at PropertyGuru, edited this story. To contact her about this or other stories email diane@propertyguru.com.my
