The rise in global interest rates is driving a “great reset” of real estate values. With the ongoing correction in private markets, REITs offer an attractive entry point with valuations at historic lows. In addition, a number of factors favor REITs:
- Large differences in valuation between public and private RE markets, while rare, have historically benefited REITs.
- REITS have historically outperformed the S&P post-Fed tightening cycles.
- REIT sectors are more concentrated in areas with strong sector secular growth, including senior housing, industrials, data centers, and residential/specialty housing.
- If the real estate repricing process continues, there will be a wave of consolidation as well-capitalized firms buy attractive properties at steep discounts.
- Longer-term, falling rates combined with an imbalance of supply and demand will be bullish for REIT valuations.
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