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Guy Barnard, Co-Head of Global Property Equities continues to see the alignment of multiple supportive factors for listed REITs in 2025.
We came into 2024 expecting an inflection point in the commercial real estate sector following two years of declines in the face of rising interest rates. As we stand today, this thesis seems to be playing out, albeit it’s been a year of ‘stop and start’, with geopolitical concerns and the markets’ expectations around rates oscillating, driving short-term sentiment toward listed real estate investment trusts (REITs).
One property CEO recently commented to us, “a lot of lights are now turning green”. Looking ahead, we’d like to highlight three key messages that continue to give us cause for optimism into 2025:
The key reasons above lead us to think that real estate ‘works’ again from today’s valuations because listed REITs have been repriced for the current interest rate environment. High and growing dividend yields, defensive income streams and diversification versus the wider equity market, all support an allocation within a balanced portfolio.
Underlying real estate fundamentals remain steady; coupled with new growth opportunities ahead for the listed REIT sector, we believe the asset class can continue to outperform other forms of property ownership. Share valuations have rarely ever been more discounted relative to broader equities, while interest rates have turned from a headwind into something looking more supportive.
We may not yet be “off to the races” in the listed REIT sector, but more lights are turning green.
1 FTSE EPRA Nareit Developed Index vs MSCI World Index in USD terms. Past performance does not predict future returns. FTSE EPRA Nareit Developed Index tracks the performance of real estate companies and real estate investment trusts (REITs) from developed market countries. MSCI World Index captures the performance of large and mid-cap representation across 23 developed markets countries.
Cash flow: the net balance of cash that moves in and out of a company. Positive cash flow shows more money is moving in than out, while negative cash flow means more money is moving out than into the company.
Diversification: a way of spreading risk by mixing different types of assets/asset classes in a portfolio, on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.
IMPORTANT INFORMATION
REITs or Real Estate Investment Trusts invest in real estate, through direct ownership of property assets, property shares or mortgages. As they are listed on a stock exchange, REITs are usually highly liquid and trade like shares.
Real estate securities, including Real Estate Investment Trusts (REITs), are sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, supply and demand, and the management skill and creditworthiness of the company. Additionally, REITs could fail to qualify for certain tax-benefits or registration exemptions which could produce adverse economic consequences.