The real estate investment trust (REIT) sector is moving into a more positive environment in 2024, according to a forecast released by the National Association of Real Estate Investment Trusts (Nareit).
While high interest rates impacted the commercial properties that fuel the REIT sector, Nareit’s Executive Vice President for Research and Investor Outreach John Worth stated that conditions from the closing months of 2023 are pointing to a more robust 2024.
“The impressive performance of REITs during late October and November may be a signal that, as in previous periods of monetary policy adjustments, the end of the rate-rising cycle will herald a period of REIT outperformance,” said Worth in a posting on the association’s blog.
Worth predicted 2024 will see more of the REIT consolidations that shaped much of 2023, when seven publicly traded REIT-to-REIT mergers within the same property sector occurred.
“These mergers underscore the benefits of having scope, scale, and a robust operating platform in real estate, the last of which is a natural advantage for REITs,” he said.
Worth also forecasted REITS benefit from their access to new and emerging property sectors.
“In 2023, this has been evident in the increased demand seen for REIT data center space, fueled by the artificial intelligence boom, as well as the creation of the gaming real estate sector in the FTSE Nareit U.S. REIT indexes,” he observed. “REITs will also continue to provide access to global real estate and industry leading sustainability performance.”
As for the difficulties facing commercial real estate, Worth expected “the wide valuation divergence between REITs and private real estate, which has been surprisingly and stubbornly slow to close, presents meaningful opportunities for investors to arbitrage between the two markets. We expect the convergence process to gain speed in 2024 as private real estate reprices and REITs recover.”
Outside of the U.S., Worth predicted the “global footprint of REITs and listed real estate companies will continue to expand, with digitally driven real estate likely to account for a growing share of that enlargement.”
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