REIT stocks rise 10-25 percent as rate cuts and market trends boost confidence, says Colliers Canada
Canadian real estate investment trusts (REITs) have started to recover after experiencing losses, aided by ongoing interest rate cuts, the return to office practices, and growing market confidence, according to a report by BNN Bloomberg.
Adam Jacobs, head of research at Colliers Canada, explained that REITs, often dependent on borrowing and refinancing, suffered during the COVID-19 pandemic.
“[REITs] are a very, very capital-intensive business, you have a lot of borrowing, you have a lot of re-financing you need to do, and a lot of REITs have taken on some pretty big development projects, which are a leap of faith,” Jacobs said during an interview with BNN Bloomberg on Friday.
He highlighted the Toronto development, The Well, as an example. This building was planned before the pandemic, but the market shifted significantly in the years following its conception.
Jacobs noted that the investment “made perfect sense” at the time.
“It (was) going to be a tech hub (with) Shopify and Amazon…then you wake up in 2024 and everybody is working from home and Shopify walks away from their lease, so they obviously borrowed a lot of money due to construction, to buy the land, and to do the leasing and everything. So, it’s been a difficult time for them, because they are in a constant state of needing to borrow and re-finance.”
Despite these challenges, REIT stocks have surged 10 to 25 percent in the past few months, driven mainly by interest rate cuts. However, Jacobs acknowledged that this area has taken more significant hits compared to other sectors of real estate.
Jacobs identified three key trends affecting REITs: “interest rates, work from home, and the housing crunch.”
Depending on the type of REIT, these factors have had either a positive or negative impact on performance.
This resurgence in interest was not entirely unexpected. Last month, TD analyst Sam Damiani informed BNN Bloomberg that the S&P/TSX Capped REIT index had its second-best week since November 2024.
TD analysts had also anticipated that Canadian REITs would outperform, “as they have in similar periods since 1988.”
“It’s pretty across the board,” Jacobs said about the rebound in REITs. “ …It’s just kind of a general like ‘the worst is over; we can put our money back into this sector and probably get a good return over the next couple of years.’”
