A recent report from Hazelview Investments paints a promising picture for real estate investment trusts (REITs) in 2025, suggesting that the sector stands on the brink of significant growth thanks to favorable valuations not seen in decades.

Despite a brief dip in investor sentiment due to a cautious approach from the U.S. Federal Reserve in December, the report highlights that REITs managed to finish the previous year with positive mid-single-digit returns. Corrado Russo, managing partner and chief investment officer at Hazelview, expressed optimism in an interview, stating, “The underlying fundamentals remain robust. Demand for properties is surging, leading to enhanced occupancy rates and rising rents.”

However, the supply side has been greatly affected by the COVID-19 pandemic and subsequent interest rate hikes, resulting in development challenges. Russo notes, “We are witnessing historically low levels of new supply. As demand continues its upward trajectory, the current imbalance is likely to spur increases in occupancy rates and rents, ultimately boosting cash flow growth for REITs.”

The report underscores that public REITs are currently trading at exceptionally attractive relative valuations when compared to global equities. With valuation levels entrenched in decade-long discounts, global REITs present an enticing opportunity for investors looking to capitalize on the market dynamics. The analysis reveals that REITs are priced at a 17% discount to their intrinsic value, hinting at a potential 20% price increase in the next year.

Moreover, Hazelview forecasts an annualized total return of 13% to 15% over a two-year holding period, factoring in a 3.8% dividend yield. This anticipated performance follows three tumultuous years in the economy, reflecting an overarching theme of recovery.

Key investment themes for 2025 include:

1. Global Data Centres

These are identified as a compelling investment, fueled by booming demand from major tech companies due to the rise of digital transformation, AI applications, and cloud computing. Notably, supply constraints are exacerbated by power and equipment shortages, leading to record low vacancy rates.

2. Senior Housing

There is robust growth expected in this sector, driven by demographic needs in both Canada and the U.S., amidst ongoing supply constraints.

3. Hotels in Japan

The report identifies strong signals for growth due to increased inbound tourism, propelled by the removal of pandemic-related travel restrictions and favorable currency exchange rates.

4. Commercial Real Estate Brokers

This sector is highlighted as a high-potential investment area for 2025, capitalizing on planned recoveries in property transactions and growth in facility management services.

5. Residential Real Estate in Germany and Australia

This market presents unique opportunities due to the ongoing supply-demand mismatch and favorable demographic trends.

Overall, the insights from Hazelview Investments suggest that 2025 could be a watershed year for REITs, marking a significant recovery phase for investors willing to navigate the diverse landscape of real estate opportunities amidst changing regional dynamics. Don’t miss the chance to position yourself ahead of this expected boom!