The outlook for real estate in 2025 is bright, according to many Wall Street insiders. After a tough few years, it’s “the beginning of a new cycle” for real estate investment trusts, according to Citi. The firm expects 2025 total returns for regular dividend-paying REITs to be between 10% and 15% thanks to accelerated year-over-year earnings growth, reduced supply, a solid macroeconomic backdrop, and reasonable valuations. are. “Relative to previous years, we believe interest rates will remain broadly stable as fundamentals accelerate,” said Nick Joseph, an analyst at Citi. “Fundamentals are likely to persist and strengthen.” Last week’s notes. The iShares U.S. Real Estate ETF (IYR), which tracks U.S. stocks in the real estate sector, has a total return of over 8% in 2024. IYR YTD Mountain 2024 iShares U.S. Real Estate ETF (IYR) is also Bank of America. He is bullish on REITs, noting that stocks are trading near record-low relative multiples and that 50% of real estate stocks offer higher yields than REITs. 10 year bond. Additionally, the percentage of S&P 500 real estate sectors with an S&P quality rating of B+ or higher has doubled to 70% over the past decade, analyst Jeffrey Specter said in a Dec. 6 note. Ta. “Overall, we believe the 2025 backdrop will be positive for REIT fundamentals,” he said, noting that the bank’s economics team expects healthy gross domestic product growth. “Supply could decline in 2025 and reach historic lows in 2026,” Spector added. “Furthermore, public REITs maintain cost of capital and access to capital that is more favorable than private owners, and stable interest rates help reduce the gap between buyers and sellers, facilitating transactions.” Signs of Strength One sign of potential strength for REITs is the increase in transactions seen in CBRE’s U.S. real estate transaction volume, according to Janus Henderson. It is said that it comes from The company said this increase is usually a good sign of an inflection point in the cycle. “The rebound in trading…highlights multiple avenues for REITs to drive revenue growth, strengthen asset value prospects, and ultimately increase the likelihood of share price appreciation and dividend increases in the new cycle. ” said a Nov. 11 report from Janus Portfolio Managers. Greg Kuhl and Danny Greenberger said: Kuhl said he believes fundamentals will be primarily important in 2025, which could lead to higher valuations. There is speculation that the Trump administration’s policies next year could push up inflation, but he believes it is premature to invest on that theory at this stage. “I think a lot of that was priced in in the weeks and months leading up to the election,” said Kuhl, who runs the firm’s JRE real estate ETF with Greenberger. His base case is for the 10-year Treasury yield to stay around its historical range, giving him a total return of about 9%, he said. JRE 1Y Mountain Janus Henderson US Real Estate ETF “So growth, plus dividends,” he said. “On top of that, if you buy some undervalued stocks, you can get some extra returns.” Where to invest Still, not all REITs are created equal. Some areas are more advantageous than others. Citi said stock selection continues to be an alpha driver, although the company is overweight in healthcare, housing, industrials and infrastructure sectors. The company has a portfolio of REIT models that maintain overweight weight positions in various sectors. Some of the holdings in that portfolio are listed below. Healthcare REITs are currently popular stocks among analysts and investors. Janusz Henderson believes the biggest opportunity at the moment lies particularly in senior housing. Janus’ Kuhl explained that the population is aging at the same time as supply issues. “There is literally almost nothing being built in this country right now,” he said. “At the same time, there are huge tailwinds of demand that we can see happening and can continue to happen. This is a really good story.” It owns and develops care facilities and medical office buildings and is one of JRE’s major holdings. Kuhl also sees opportunity in data centers that will benefit from the artificial intelligence boom. JRE’s largest holding is data center company Equinix. In addition to opportunities in data centers and health care, there’s also value in retail, said Steve Brown, senior portfolio manager at American Century Investments. He especially likes open-air shopping centers with a focus on grocery stores. Although demand is high, there is little construction work. “Occupancy rates for shopping centers are rising, asking rents are rising, and there are really very few closures or bankruptcies,” said Brown, who manages the company’s real estate fund (REACX). “Listed companies are not yet considered a hot asset class, so prices are affordable compared to other real estate sectors.” He likes Regency Center and Urban Edge properties. I also like Simon Property Group in the mall sector. This is because occupancy rates and rents are rising and there is no new supply. Bank of America also focuses on healthcare and retail. “We’re focused on the REITs with the best earnings prospects, the best growth prospects and rising market expectations,” Bank of America’s Mr. Spector said. “While we believe a barbell approach is most appropriate between quality and value, we favor REITs with strong, flexible balance sheets that can drive external growth in 2025.”Here, in 2025. Here are some of the company’s top picks for the. American Healthcare owns a diverse portfolio of healthcare assets, including senior housing, skilled nursing facilities, and medical clinics. Spector believes the company, which went public in February, will benefit from senior housing transactions as America’s population ages. In housing, he likes American Homes 4 Rent. “We continue to be positive about AMH’s portfolio, limited new supply of single-family homes, structural demographic tailwinds from aging millennials, increasing consolidation and development opportunities, and strong management,” said Spector. ” he said. “Rising mortgage rates also benefit single-family rental REITs.”
Wall Street expects these high-dividend real estate stocks to turn around in 2025
