Canadian REITs outperformed the global public real estate market last year, generating a total return of 11.8%, according to a new report by real estate management and investment firm Hazelview Investments.
That compares with an 8.3% total return for global REITs (measured in local currency terms), 4.9% for bonds and 18.4% for global equities.
While in Canada, overall performance was buoyed by senior housing — a sector that Hazelview expects to continue to grow, along with utilities — REITs have underperformed since 2020, generating a cumulative total return of 10.5% against a whopping 111.9% for global equities.
Hazelview, which has $11.4 billion in assets under management across public and private markets, sees a turnaround for REITs coming as interest rates continue to trend lower and new supply across property types declines.
“Taken together, we believe global REITs are poised to transition out of this atypical period of underperformance and into an environment where performance more closely resembles the two decades preceding the pandemic,” the report said. “During that period, global REITs generated annualized returns of approximately 9.4%, over five times higher than their annualized returns since 2020, supported by favourable supply-demand dynamics, strong earnings growth, and healthier investor sentiment.”
It projects REIT earnings globally will grow by 7.2% in 2026.
Using its internal valuation models, Hazelview estimates that global REITs are trading at a 17% discount to intrinsic value, which it defines as a blend of net asset value and cash flow. Canadian REITs are valued slightly below the average, at a 21.2% discount.
In response to low valuations, REIT managers in Canada, the U.S. and other markets turned to privatization and share buybacks in 2025, the report notes.
“When public market valuations fail to reflect underlying asset values, privatization becomes a viable alternative,” it said, adding that multiple REITs announced privatization deals at substantial premiums to prevailing share prices last year. In Canada, those included Dream Residential REIT at premium of roughly 60% and InterRent at a roughly 35% premium.
“These transactions underscore how private capital continues to exploit public market dislocations,” the report said.
At the same time, some private market real estate funds have run into liquidity issues in recent years, with managers (including Hazelview) temporarily freezing redemptions or reducing monthly distributions.
“The private real estate market is still getting its footing around liquidity,” said Samuel Sahn, managing partner and portfolio manager with Hazelview, in an interview. “Liquidity is kind of coming back slowly. We are seeing improvements in transaction volumes around the world. There is a wall of capital sitting on the sidelines, that’s looking to invest in real estate.”
Sahn noted that to achieve their expected return, these investors can choose to purchase assets privately, buy shares of public companies, or acquire public companies outright.
As has happened historically, Sahn said a recovery in the public markets is likely to lead an improvement on the private side. “Public REIT share prices will react first on the way out, and we would expect the public REITs to experience stronger gains in their valuations over the next several years, and then the private market will catch up thereafter.”
Senior market, industrials to outperform
In Canada, Hazelview sees particular strength in the senior market, as the population over 80 is expected to grow at a compound annual rate of 4.8% through 2042, according to Cushman & Wakefield. The report added that new construction starts are near record lows dues to higher construction costs, elevated interest rates and limited access to financing in the first half of 2025, with “fewer than 5,000 units or 0.25% of existing inventory” breaking ground.
“When you get that level of population growth combined with the fact that new supply as a percentage of existing inventory is only 25 basis points, it sets the stage for very strong gains in occupancy,” Sahn said. “Those occupancy gains translate to pricing power, translates to higher margins, translates to higher EBITDA and earnings growth, and we think that sector in particular, is poised to experience really strong gains and share prices driven by strong gains in cash flow.
Industrials are also expected to be strong, supported by a depleted construction pipeline at about 1.2% of existing inventory.
While new industrial supply increased over the last few years to accommodate growth in e-commerce space close to urban centres since the pandemic, that supply is “tapering,” Sahn said.
“We’re starting to see better net absorption rates, better demands for space, now that there has been more clarity around tariffs, and that is leading to a greater appetite for larger spaces, leading to more occupancy gains, and what we think will be ultimately an inflection in market rent over the next 12 months.”
Asked about segments that are expected to underperform, Sahn said some categories, like office properties, are poised for a “softer” recovery, but Hazelview still anticipates an improvement across segments.