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Listed REITs tend to lead in downturns and recoveries — and right now they’re poised to grow, says Rich Hill, senior vice-president and head of real estate strategy and research with Cohen & Steers.

“Across economic scenarios — whether we’re talking about a no landing, a hard landing, a soft landing or a reacceleration in inflation — based upon our economic views, we actually see positive returns across each of those scenarios,” he said.

“The best opportunities in real estate right now are in the listed REIT market.”

Listed REITs didn’t have a great start in 2024. They’re down about 6% year to date, but that statistic may be a little misleading, Hill said. He pointed out that listed REITs are up about 10% year over year, and up almost 20% from the trough in October 2023.

“The market maybe got a little bit ahead of itself,” he said. “It was pricing in six to seven interest rate cuts by the U.S. Federal Reserve in 2024. Now it’s pricing in something much more realistic, in the one- to two-cut range.”

With a little more time, listed REITs should perform quite well, he added.

“Over the next 12 months, we think that on a probability weighted basis, they’re going to be up in the high-single-digit range. And I think active management can add another 200 or 300 basis points,” he said.

As for private real estate markets, they’re down about 20% from their peak. Hill said he expects them to continue to drop another 5% to 10% this year, allowing patient and selective investors to buy at discount prices.

“We think they’re around two-thirds of the way through the decline. They’re probably going to be down 25% to 30% by late 2024 and early 2025,” he said. “This is setting up for a generational opportunity to invest in private real estate.”

Hill sees opportunities in commercial property, especially in high-quality office properties located in vibrant markets. Retail is also promising, he said, following the Covid lockdowns that weeded out underperformers.

“We really like open-air shopping centres. And we think it’s probably one of the few asset classes that you can buy right now and make some pretty attractive returns on,” he said.

But he’s particularly keen on opportunities such as data centres, cell towers, seniors housing and single-family rentals — the “next-generation property types” that now constitute almost 60% of the listed REIT market.

“Everyone thinks about commercial real estate as sort of an old-economy asset class, but in reality, it’s not. It’s become the new economy,” he said.

Hill describes single-family rentals as a close cousin of the apartment sector. It was always a significant part of the housing market, he said, but after the Great Financial Crisis, single-family rental has become “institutionalized.”

“You’ve seen big landlords start to acquire single family homes to rent them out,” he said. “That’s become an income-producing real estate asset class, making it much more similar to commercial real estate than residential real estate.”

Hill believes long-term prospects for the commercial real estate asset class are favourable, despite the perception that high interest rates and high inflation are here to stay.

“I reject that this is a new normal environment. It’s not a new normal environment. We’re returning to an old normal environment that existed for decades prior to the GFC,” he said. “We think a higher interest rate and a higher inflation regime is actually good for commercial real estate over the medium to long term.”

He added that conditions are ripe for real estate returns.

“I think we can all agree that the sentiment around commercial real estate is not great right now,” he said. “But this is the very best environment to actually generate returns. In the aftermath of environments like this, you usually produce best-in-class vintage returns.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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