REITs remain well-positioned to navigate ongoing economic uncertainty and the valuation gap between public and private real estate markets is beginning to close, according to Nareit’s 2023 Mid-Year Report. These are just two of the main findings from the report, which uses historical data and in-depth analysis to examine:
- What’s ahead for the year from a macroeconomic perspective.
- Why public and private real estate valuation adjustments could stretch to 2024.
- Why REITs are prepared for economic uncertainty.
- How REITs are performing in different countries.
- How actively managed REIT funds are shifting their allocations.
Notably, the analysis of actively managed REIT funds shows that REIT managers have significantly shifted their allocations over time, including from traditional sectors to modern economic sectors. That finding complements a larger theme that Nareit continues to see playing out: institutional investors are increasingly using REITs to “complete” their real estate portfolios.
Another theme that the mid-year report explores is the ongoing valuation gap between private and public real estate markets. Against the backdrop of economic developments over the past six months, Nareit uses in-depth analysis of public and private cap rates to show although the valuation gap is closing, progress has been slow as illustrated by appraisal cap rates. The report also examines how REIT balance sheets and fundamentals have remained strong amid capital market uncertainty and mortgage market turmoil.
The third and final element of the report looks at the global REIT landscape and diversification opportunities. The report analyzes the performance of the FTSE EPRA Nareit Global Real Estate Index, which covers 510 constituents in 39 countries. Among other findings, the examination of the index series shows that data centers, industrial, and self-storage have been the strongest performing sectors in 2023.