Revisiting REITs
Bottom line up top:
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Portfolio considerations
It might be time to consider taking some real estate allocations public.?Both public and private real estate investments have provided healthy returns during past rate hike cycles. While public REITS have tended to do better while rates are going up, private real estate has outperformed in the 12-month periods immediately following the end of those cycles (Figure 2). This year, private real estate looks poised to repeat its history of strength in rising rate environments. Meanwhile, the historic decline in publicly listed REITs in 2022 so far could position the asset class for a brighter post-hiking future. Investors who believe we’re closer to the end of the rate hike cycle may find public REITS an area worth examining for future real estate allocations.?
We don’t recommend buying sight unseen.?While value may be found in several REITs sectors, we don’t expect all property types (or individual REIT companies) to recover equally. Increases in real estate stock prices over time are tied to the growth in their earnings, as well as the value of the underlying real estate owned by the REIT. This means an emphasis on selectivity is paramount.?In our view,?investors may be best served by seeking out high-quality, well-capitalized REITs with superior assets located in supply constrained markets.?These assets tend to benefit from lower construction rates, higher occupancy rates and high barriers to entry. On a sector basis, as with their private counterparts,?we currently favor publicly traded REITs in the apartment and industrials sectors,?thanks in large part to strong absorption rates and historically low vacancy levels in both sectors.?The retail property sector may present a compelling opportunity?as well, as store openings have outpaced closings for the first time in several years, due in part to a notable shift in consumer preference for brick-and-mortar retail in the post-pandemic environment.
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2 年Very insightful Saira! “Selectivity” seems to the the key for 2022 & 2023.