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Real Assets

SUPPORTIVE TRENDS ACCELERATE REIT REBOUNDSUPPORTIVETRENDSACCELERATEREITREBOUND

Dec 12, 2024

The real estate market is gaining tailwinds for a sustained rebound as improving macro conditions and fundamentals create a good entry point for investors.

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After a rocky start, global REITs showed renewed signs of life in the third quarter when the Federal Reserve initiated its easing cycle. REITs rallied as the equity market’s focus expanded beyond large-cap technology stocks with growing support for a continued rebound in 2025.

TAILWINDS FOR A SUSTAINED REBOUND 

  • Better macro conditions: Moderating rates with a lower cost of capital and subdued inflation form the foundation of a supportive backdrop heading into 2025. 
  • Improving fundamentals: Limited new construction contributes to a supply-and- demand imbalance that is likely to keep underlying property fundamentals solid for several years. 
  • Mean reversion potential: Valuations appear attractive at the outset of 2025. In an equity environment marked by extended valuations among market-leading stocks. REITs represent relative bargains versus broad market averages, positioning them to benefit from mean reversion. 
  • Acceleration in M&A and IPO activity: Large-scale privatization was a major REIT market theme in 2024. Reduced cost of capital enabled many REITs to pursue acquisitions more aggressively, opening new avenues for earnings growth in 2025. A lower-rate environment is expected to attract more private-equity interest in the REIT category, leading to more deals if market conditions continue to cooperate. 

REITS TRADING AT DISCOUNT VERSUS EQUITIES

Source: Bloomberg, MSCI, Standard & Poor’s. Analysis as of 10/31/2024 for the MSCI US REIT Index and S&P 500 Index.

FOCUS ON DEFENSIVE GROWTH AREAS 

Barring a major economic contraction, we expect REIT fundamentals to remain steady for most property types, given long lease durations, low supply risk, and defensive and secular-based demand. A mild economic contraction could serve as a positive REIT catalyst as rates retrace and valuations benefit from the category’s defensive nature. 

  • Data centers: AI proliferation is driving immense demand for data centers in a supply-constrained market, contributing to low vacancy rates and higher rent growth. 
  • Health care: The sector generated most of its growth from external acquisitions in the past 12 months—an area we expect to become very active going forward. 
  • Storage: We like cold storage given attractive valuation support, defensive demand base (food consumption) and improving operating efficiencies. We’re cautiously optimistic on self-storage, which has started to recover and could benefit from increasing housing sales as mortgage rates decline. 
RICK ROMANO. CFA

Head of Global Real Estate Securities

PGIM Real Estate

After a volatile couple of years, we’re optimistic about steadier macro conditions underpinned by a lower cost of capital. Given the strong fundamentals and compelling long-term drivers in certain REIT sectors and regions, we think now is a good entry point for patient long-term investors.
Rick RomanoCFA, Head of Global Real Estate SecuritiesPGIM Real Estate

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PGIM asset managers highlight key trends and related opportunities that they believe warrant the most investor attention as 2025 gets underway.

The views expressed herein are those of PGIM Real Estate investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute an offer to sell or a solicitation to buy any security.  

Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.  

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation. Clients seeking information regarding their particular investment needs should contact their financial professional.  

Investment products are distributed by Prudential Investment Management Services LLC, member FINRA and SIPC. PGIM Investments is a registered investment advisor and investment manager to all PGIM investment companies. PGIM Quantitative Solutions, Jennison Associates, and PGIM are registered investment advisors and Prudential Financial companies. PGIM Quantitative Solutions is the primary business name of PGIM Quantitative Solutions LLC, a wholly owned subsidiary of PGIM. PGIM Fixed Income and PGIM Real Estate are units of PGIM. 

 

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© 2025 Prudential Financial, Inc. and its related entities. Jennison Associates, PGIM Real Estate, PGIM Custom Harvest, PGIM, and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

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