REITs on track for ‘golden year’ in 2025 | Australian Markets

Anticipated sturdy demand and short provide for industrial property, most notably for information centres and healthcare, might spur a ‘golden age’ for real estate investment trusts (REITs) this yr, with baseline returns “in the high single digits”, a main analyst predicts.

Matthew Sgrizzi, chief investment officer and portfolio supervisor at LaSalle, sees REITs in a sturdy place for outperformance in 2025, given “strong financial positions, access to capital markets and increasing investor confidence”. These situations seem to reflect different intervals resulting in a REITs growth spurt.

“The convergence of a number of factors, including a period of dislocation in bank lending, negative market sentiment, REIT underperformance, and the potential for an easing of financial conditions, mirrors the circumstances that have preceded previous periods of exceptional growth in the REIT market,” he mentioned.

For Sgrizzi, present real estate fundamentals are broadly healthy, with explicit power in information centre- and healthcare-related REITs.

LaSalle sees low provide within the core REITs sectors – in workplace space, retail industrial and residential – being a tailwind for growth, with longstanding considerations over the workplace sector lastly starting to fade.

“That low supply should support the outlook for many real estate sectors around the world this year,” he mentioned.

Excessive-quality workplaces are in high demand and short provide in lots of markets across the world, Sgrizzi mentioned, noting additionally an increase in workplace space rents in sure areas.

LaSalle predicts REITs are on observe for baseline complete returns “in the high single digits per annum over the next three years”, with round half of that return from income, matching average returns over the previous 25 years of 8% every year.

Ought to financial situations ease additional, with rates of interest – and thus borrowing prices – falling additional, these return expectations could possibly be larger – with a 50 or 100 foundation level cut doubtlessly growing returns to mid- to high-double digits.

Such a situation would “[set] the stage for the next ‘golden era’ in REITs,” Sgrizzi mentioned.

With equities “overhyped”, Sgrizzi believes that now’s the time for buyers so as to add real estate back to their portfolios.

Sizzling property

Knowledge centres and healthcare REITs are ripe for additional growth, whereas Europe and the UK are favoured given subdued costs.

“Today’s REIT sector is so broad and diverse. We are seeing some great opportunities in sectors that took a big hit in the fourth quarter, particularly interest rate-sensitive sectors that have higher longer-term growth potential or are more yield-orientated, such as cell towers, and those sectors could do quite well this year, given they have been sold down,” he mentioned.

“We see the same thing with REITs in Europe and the UK, which have taken a hit in the last couple of months with higher interest rates and in reaction to US policy changes; UK REITs are about as cheap compared to US REITS as the group has ever been and there is also less upside pressure on interest rates in Europe compared to the US.”