With the year just open, investors are thinking about which assets to bet on. The focus is on the global real estate market, full of risks and opportunities associated primarily with the development of the global economic cycle, even in the light of geopolitical unknowns. Guy Barnard, co-head of Global Property Equities at Janus Henderson, offers his thoughts on listed property, i.e. listed property securities, in 2024.
What are the main risks of investing in real estate today?
The real estate market is certainly an industry that presents risks and opportunities for investors. THE risks they relate to companies that over-indebted themselves in good economic times and now face difficult refinancing scenarios when those loans come to an end, as well as companies exposed to areas of the real estate market that face structural obsolescence, high market vacancies and a lack of pricing power.
What are the opportunities instead?
If we look into the future, we will see greater opportunities in the listed REIT market. Strong balance sheets should allow many listed companies to buy properties on an opportunistic basis, taking advantage of motivated sellers who may own valuable buildings but have weak balance sheets. In our view, easier and relatively cheaper access to capital compared to private real estate puts listed REITs on a path to faster growth in the coming years, an advantage that should not be underestimated. This dynamic has occurred in the past and has led to solid performance for listed REITs.
What factors are decisive?
The advantage of these strategies is greater exposure alternative sectors and a rapidly growing real estate market such as data centers, logistics, storage, healthcare and households. In this case, internal operating platforms should help REITs grow further and, in theory, even outperform other real estate vehicles.
What can make real estate investment attractive?
As investors, we are always looking for inflection points. Ability to take advantage of a change of perspective it’s an opportunity to generate revenue. Looking ahead to 2024, we may be at an inflection point interest cycle, which has been a dominant theme in the markets over the past two years, with the listed REIT sector among the hardest hit. It may be premature, but recent market moves highlight that if the rate story changes, investors may return to looking at sectors they’ve been avoiding recently.
Confidence in real estate asset valuations will allow investors to look beyond the macro turbulence and focus on the fundamentals: income and income growth, as well as the ability of management teams to create value through development and asset management initiatives. While stagnant rates may limit short-term capital growth in real estate as a whole, not all real estate is created equal at the geographic, sector and corporate level, and there will be undervalued areas of growth that active managers like us are capable of. identify.
What will happen to real estate in 2024?
We look to 2024 with greater confidencethere is newfound faith in the prospects of listed REITs. In a real estate market of winners and losers, we believe the listed REIT sector is in a strong position, owning more of the “right” types of properties with the benefit of easier access to capital and at significantly lower costs in most markets. .
A shift in the macro story could lead investors to reassess listed REITs, reduce underweight positions and positively re-evaluate the sector from current lows, as well as bring attention back to the attractive and growing dividends available in the asset class. A cut in interest rates, should it come, would likely offer further support.