Real Estate: REITs That Can Weather a Rising Rate Environment
Rising interest rates could be a major valuation headwind for REITs, so investors should focus on moaty landlords with good growth prospects and attractive relative valuations.
Rising interest rates could be a major valuation headwind for REITs, so investors should focus on moaty landlords with good growth prospects and attractive relative valuations.
U.S. REITs appear 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 industrial and senior living sectors. Singaporean REITs are fairly valued, but we prefer office over retail. Limited new supply of office space in the central business district in 2015 is supportive of rental growth. Although office construction will add meaningful new supply in 2016, this should be absorbed by increased tenant demand as Singapore remains a premier location for multinationals' regional headquarters. In general, we think global commercial real estate investors should be cautious in the current environment and focus on the highest-quality firms and property portfolios.
Todd Lukasik does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.