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Quarter-End Insights

Still Some Opportunities in REITs

U.S. REITs appear somewhat overvalued as a group, but we see some opportunities in the health-care, retail, and cell tower sectors.

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  • U.S. REITs appear slightly overvalued as a group, with pockets of opportunity in the health-care, retail, and cell tower property sectors. Most Australian property stocks appear fully valued, but we see some value in the retail sector, while the office and industrial sectors appear the most overpriced.
  • Capital is increasingly flowing across borders for property investments, and property values are high.
  • With acquisition prices high, more REITs are expanding their development pipelines, with initial yields projected to be 200 basis points or more above acquisition cap rates.
  • We generally expect REIT prices to move inversely with changes in long-term government bond yields, and we would expect REITs to generally underperform in a rising interest-rate environment.

Todd Lukasik does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.