A bounceback for the investment trusts is expected despite economic challenges
Real estate investment trusts (REITs) have not had an easy couple of years but share prices are set to rebound from their challenges to outperform many investment options according to a new report.
Hazelview Investments' 2024 Global Public Real Estate Outlook Report says that resilient corporate earnings for REITs and low real estate supply will combine to produce better results despite slower economic growth.
The economic outlook has improved in terms of the trajectory of interest rates compared to the last two years, and the report’s analysis of the previous five waves of central bank rate hikes since 1995 found that REITs delivered the strongest returns in periods where rate hikes were paused.
"The shifting tides of economic and monetary conditions, coupled with compelling valuations, create a canvas for strong performance in the REIT market in 2024," says Corrado Russo, managing partner & head of Global Securities at Hazelview Investments. "Navigating this landscape with precision and seizing the opportunities it presents defines our approach. This is not just a moment—it's an extraordinary market opportunity, and we are poised to capitalize on it."
Looking at the factors that could drive performance in 2024, Global REIT earnings are forecasted to rise by over 10% cumulatively this year and next when increases to property taxes, to payroll costs, and to interest expenses are factored in. Annual contractual rent increases, affirmative re-leasing spreads at expiration, and decreased vacancies are also expected to play a role.
Additionally, the outlook anticipates a two year decline in real estate supply due to the higher cost of construction and financing for projects over the past 12 months. Meanwhile, demand remains high for residential and commercial real estate. This supply-demand dynamic should drive up REIT values in key regions and property types.
"Despite a rally at the ending of 2023, REITs remain cheap," said Samuel Sahn, Managing Partner & Portfolio Manager, Public Real Estate Investments. "Over the coming year, we believe REITs that can deliver attractive earnings growth, retain pricing power in a slowing economic climate, grow margins, and trade at an appealing valuation with a higher-than-average expected return will outperform."