- What REITs should deliver strong returns in 2025, Hazelview Investments said
- Why Limited supply and low valuations offer an opportunity to capitalize on the market
- What next Regional growth prospects and sector fundamentals will vary
Real estate investment trusts are well positioned to provide investors with “attractive returns” in 2025, Hazelview Investments said in a new report.
After a period of economic volatility, REITs have recalibrated toward resiliency. Strong demand, limited supply and attractive valuations have put REITs in a position to unlock upside potential and capitalize on the market, though results will vary by location and sector fundamentals.
“As we enter 2025, we believe these fundamentals provide a solid foundation for growth, with earnings expected to accelerate over the next 12 months,” Hazelview said.
Limited-supply conditions have been observed across the firm’s global portfolio, Hazelview said, with the one exception being the office sector in North America.
The company anticipates occupancy rates will remain high in 2025 as low levels of supply lead to more net absorption of vacant space. Even in the office sector, signs of recovery are showing, with Class-A, amenitized buildings benefiting from the flight to quality.
As construction starts fall, a continuing drop-off in new supply will bolster already high demand, particularly in Canada’s residential sector.
Favourable valuations
REITs are benefiting from decreased valuations, trading at their cheapest levels in over 20 years relative to global equities.
“We believe this valuation disparity positions REITs for a potential re-rating over the next 12 months,” Hazelview said.
The company’s valuation modeling found that, globally, REITs are priced 17% below their intrinsic value, with a 20% upside in price from current levels. In Canada, that upside is forecast at 31.5%.
This modeling did not factor in potential capitalization rate compression, which further could enhance the anticipated upside.
In recent years, REITs have taken steps to “strengthen their balance sheets and enhance operational efficiency,” Hazelview said. These steps have included taking advantage of historically low interest rates during the pandemic, issuing long-term, fixed-rate debt.
Heading into 2025, the global REIT debt-to-gross-asset value is 34%, with net debt to EBITDA at 6.3x – factors that put REITs in a position to go on the offensive, Hazelview said.
