A more resilient labor market combined with softening inflation data bodes well for a near-term end of the Fed’s current rate-tightening cycle and improved REIT sentiment. Outside the office sector, fundamentals remain steady, with roughly 4% funds from operations per share growth expected in 2023, followed by 7% in 2024. Barring a major economic contraction, we expect REIT fundamentals will remain steady for most property types given long lease durations, low supply risk and defensive and secular-based demand.
- The U.S. real estate investment trust (REIT) market gained 2.2% in the second quarter of 2023, lagging the S&P 500’s 8.7% return. Year-to-date REITs are up 4.6%, well behind the broader market’s 15.9% return. We continue to view the REIT market as overly discounting a likely slowdown in the U.S. economy. With low supply growth in recent years and strong secular demand trends in many sectors, we expect fundamentals will remain resilient even if economic growth softens.
- Europe saw a slightly positive return of 0.9% (U.S. dollar gross total return) in June, just edging Asia Pacific but still lagging well behind North America’s positive, 4.7% return for the month. In both the second quarter (-3.2%) and the first half (-6.1%), Europe trailed well behind North America. Stubborn inflation data and longer central bank tightening cycles have been the main factors behind Europe’s continued underperformance this year.
- The Asian real estate equity market ended the second quarter weaker, delivering a -3.3% return5 Hong Kong declined the most (-9.6%) for the quarter, followed by Singapore (-4.9%) and Japan (-1.2%). Australia was the only exception, delivering a 0.2% return for the quarter.