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Quarter-End Insights

Real Estate: Rising Rates Won’t Derail Strong Fundamentals

REITs have focused on strengthening their portfolios, deleveraging, and capital recycling in the face of higher bond yields and new construction.

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  • Morningstar's real estate coverage appears fairly valued at current levels.
  • We view themes in commercial real estate as generally defensive in nature, with lingering concerns about increasing bond yields associated with future rate hikes. 
  • Despite these concerns, we continue to focus on underlying performance, which has remained healthy overall, as REITs have been focused on repositioning and strengthening their portfolios, deleveraging, and capital recycling. 
  • Construction of new property continues as firms look for higher returns; however, this raises questions about oversupply as economic uncertainty remains. 
  • At current price levels, we see attractive investment opportunities scattered across various asset classes within our REIT coverage. Vornado is trading at a noteworthy discount to our fair value estimate.

U.S. Real Estate Outlook
Contributed by Brad Schwer

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