After two years of underperformance, global real estate investment trusts are expected to outperform in 2024 due to a decline of supply and resilient corporate valuations, according to a new report from Hazelview Investments.
It found global REITs saw a turnaround rally of 18.9 per cent over the last two months of 2023, leading the asset class to end the year with an increase of 10.8 per cent. Nonetheless, global REITs underperformed compared to global equities, lagging by 1,359 basis points.
However, global REITs are forecasted to rise in value more than 10 per cent cumulatively over the next two years, despite increases to property taxes, payroll costs and interest expenses. Indeed, the report said global REITs are currently priced with a high-teen valuation discount.
Read: Office real estate investments, valuations declined in 2022: report
“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 and head of global securities at Hazelview Investments, in a press release.
The report noted there was a $10.3 billion outflow for global REITs from dedicated mutual funds and exchange-traded funds, which came on the heels of an $18 billion outflow in 2022. However, in December 2023, global REITs experienced an inflow of $271 million. While the asset class has experienced a 35 per cent decline in trading multiples since the start of 2022, globally, REITs have seen cumulative earnings growth of more than 15 per cent.
“Even though economic growth is forecasted to be slower in 2024, we believe REIT earnings will prove resilient supported by annual contractual rent increases, positive releasing spreads upon expiration and the lease-up of vacant space.”