According to Hazelview Investments’ 2024 Global Public Real Estate Outlook Report, after two years of challenging conditions, share prices for global real estate investment trusts (REITs) are poised to outperform in 2024, fueled by two key dynamics: resilient corporate earnings for REITs despite slower economic growth, and rapid declines in new real estate supply.
Tom Fisk
“The shifting tides of economic and monetary conditions, coupled with compelling valuations, create a canvas for strong performance in the REIT market in 2024,” said 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.”
When compared to the previous two years, the current economic and capital markets environment is much more favourable, specifically with respect to the trajectory on interest rates, said Hazelview.
“Recent economic indicators suggest a moderation in both inflation and economic growth. That moderation would give central bankers confidence that the tightening of financial conditions, along with the lag effect from higher interest rates and the reduction of central bank balance sheets, will slow inflation to levels that more closely resemble years preceding the pandemic,” said the company.
“Looking back at central banks’ five waves of interest rate hikes since 1995, REITs were able to deliver the strongest returns in the wake of pauses to those campaigns. This is a key historical point that underlines the opportunity ahead for REITs as an asset class.
“Heading into 2023, Hazleview cited three catalysts that would help to close the valuation discount for REITs: slowing interest rate increases, corporate earnings surpassing expectations, and mergers and acquisitions providing a floor for evaluations. All three of those materialized in 2023.”
The report said global REIT earnings are forecasted to rise by over 10% cumulatively in 2024 and 2025 — a projection that factors in increases to property taxes, to payroll costs, and to interest expenses. Parallel supporting items include annual contractual rent increases, affirmative re-leasing spreads at expiration, and decreased vacancies.
It also said upply is forecasted to decline in 2024 and 2025. A consequence of the rise in inflation over the past 18 months has been a significant increase in construction and financing costs over the last 12 months, from interest rates staying higher for longer. Sustained demand for residential and commercial real estate, fueled by a resilient global economy and coupled with the forecasted drop in supply growth, would drive REIT values higher. In short: reduced construction will further highlight the imbalance between supply and demand, 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.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list
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