From the rate cuts, new opportunities for the real estate market - FundsPeople Italia

There are certain patterns in the behavior of REIT stocks that often act against changes in interest rates. Based on this, investment professionals suggest that with the upcoming rate cuts in the summer, there will be a more harmonious relationship with economic fundamentals. Lower rates also lead to cheaper mortgages, and this simple principle opens up numerous opportunities for investors to enter the real estate market. The corrections that have occurred in the global real estate sector over the past year and a half to two years have created conditions for a more advantageous entry into markets where prices have been adjusted, according to Kiran Farrelly, head of global real estate solutions at Schroders Capital, especially relevant for the Asian region.

According to the expert, Schroders Capital continues to support assets that are influenced by high demand and are capable of generating income linked to inflation, both directly and indirectly. One of the notable trends is the changing structure of investment portfolios in real estate.“The ability to quickly respond to changes in related sectors, such as office, retail, industrial, and multifamily housing, offers early investors a variety of attractive options.”— he notes.

The REIT market, which brings together real estate funds, shows high concentration and significant influence from a few large players on the entire index.

He also adds that the market often perceives the entire real estate sector as focused solely on offices and retail spaces, however, in reality, there is demand in various other segments.The greatest opportunities can be found in areas such as:

• e-commerce
• healthcare
• logistics
• data centers
• cell towers
• medical institutions

According to the expert, public REITs will significantly benefit from their involvement in these rapidly growing and alternative sectors of the real estate market.

Regarding high-yield credit, according to Mike Scott, head of global high-yield investments and credit opportunities at Man GLG, companies with tangible assets, such as those in the real estate sector, can sell their assets, attract new financing against them, or liquidate them to optimize their liquidity profile. Against this backdrop, economic indicators have begun to show some strength. Mark Dowding, responsible for fixed income at RBC BlueBay AM, notes that real estate was previously a source of weakness, but now prices seem to be starting to rise, and analyzing conversations with British banking institutions suggests that activity in the mortgage market is returning to levels seen before the onset of interest rate hikes.

Based on data about funds investing in real estate, we can highlight the following indicators:

• Janus Selection Global Real Estate Fund, 39 million euros, with a return of -0.79% over the past year, 1.16% over three years, and 2.94% over five years.
• Janus Henderson Capital Funds Global Real Estate Equity Income Fund, 155 million euros, with a return of -0.99% over one year, 0.21% over three years, and 1.94% over five years.
• Nuveen Global Real Estate Carbon Reduction Fund, 32 million euros, with a return of -0.02% for the year, 3.78% over three years, and 3.93% over five years.
• PGIM Global Select Real Estate Securities Fund, 305 million euros, with a yield of 2.09% for one year, 3.42% for three years, and 2.8% for five years.

Source: Morningstar as of March 24, 2024. All data is presented in millions of euros, and the funds have current ratings according to FundsPeople 2024.