Cohen & Steers report shows REITs resilient amid rising rates
by@CNBC
Summary
The stocks of real estate investment trusts (REITs) are showing resilience in the face of rising interest rates, with current fundamentals proving to be a key strength. Experts note that while higher rates have impacted commercial real estate from 2022 to 2024 by increasing borrowing costs and limiting new developments, other factors, such as improving cash flows and earnings visibility, are now driving REIT performance. Notably, 58 of 98 REITs have raised their full-year outlooks as new development pipelines decrease, reducing oversupply pressures and supporting stronger rent growth. Year-to-date, REIT returns are up over 6%, indicating robust health for the sector despite rate challenges.
Analysis
Seth Laughlin: Seth Laughlin is head of real estate strategy and research at Cohen & Steers. He commented on the current environment, noting that real estate earnings growth is accelerating and helping the sector compete with higher yields available in other asset classes. Cohen & Steers: Cohen & Steers is an investment management firm specializing in real estate and alternative investments. The firm released a report examining REIT performance relative to changes in Treasury yields, emphasizing that interest rate levels or directions alone have not served as consistent predictors of returns. David Auerbach: David Auerbach is chief investment officer at Hoya Capital Real Estate. He authored analysis highlighting healthier fundamentals, including improved cash flow visibility and stronger balance sheets, which are allowing REITs to better absorb rate pressures. Hoya Capital Real Estate: Hoya Capital Real Estate is an investment firm focused on real estate securities and strategies. Its leadership contributed analysis through a report titled 'The Rate Shock That Didn't Break REITs,' underscoring how current property-level dynamics are supporting the sector amid higher borrowing costs. Economic Role: REITs function as landlords to a healthy broader economy, with solid property-level performance and dividend coverage enabling resilience despite rate competition from other assets. Supply Dynamics: New development activity in most REIT sectors has declined from recent peaks, reducing oversupply pressures and supporting stronger rent growth and valuations. REIT Fundamentals: Real estate fundamentals are now the primary driver of REIT performance, with improving cash flows and earnings visibility helping the sector withstand higher interest rates.
Categories
macro