Is Now the Time to Invest in Real Estate? Market Watchers Say Yes
Mounting inflation and interest rates have put significant pressure on several sectors, particularly real estate. However, some market watchers believe that this challenging environment may actually present an opportune time to invest in the real estate market. According to these experts, interest rates are expected to decline over the next 12 months, making it an attractive time for potential investors.
It is suggested that investors allocate around 10% of their portfolio to real estate, either through REITs (real estate investment trusts), direct ownership, or other investments suitable for larger investors. REITs are specifically highlighted as an appealing option due to their unique ability to offer investment opportunities across various geographies and segments. They are also known for their solid growth rates within the real estate space.
Among the different types of commercial properties, those occupied by drugstores, retailers, food outlets, and gas stations are recommended for their diversity and resilience to economic conditions. One notable REIT to consider in this sector is Realty Income. With over 13,000 commercial properties boasting a high occupancy rate and a triple net lease structure – where tenants are responsible for all expenses – Realty Income has consistently increased its dividend payout for an impressive 25 consecutive years. Moreover, it currently trades at a discount to its net asset value, making it an attractive investment opportunity.
Data centers offer another promising area of investment. Experts predict a shortage of supply coupled with a significant spike in demand, driven by advancements in artificial intelligence. Two REITs focused on data centers, Prologis and Equinix, are mentioned as potential options. Prologis, as the owner of nearly 800 properties globally, including data centers, and Equinix, which operates 250 data centers, both currently trade at a premium to their net asset value.
The senior housing market, particularly in the United States, is another segment worth keeping an eye on. The aging baby boomer generation is driving high demand growth in this sector. However, due to the pandemic, building activity has slowed down, causing the supply of senior housing facilities to fall behind occupancy levels. Ventas and Welltower, two REITs with exposure to the senior housing market, are recommended options. Ventas owns over 1,400 properties, including senior housing facilities, and is currently trading at a discount to its net asset value. On the other hand, Welltower offers exposure to senior housing and outpatient care facilities and is currently trading at a premium.
So, while inflation and interest rates continue to create challenges for various sectors, it seems that the real estate market may present a promising opportunity for investors. With the expectation of declining interest rates in the coming months, allocating a portion of one’s portfolio to real estate, perhaps through REITs like Realty Income, Prologis, Equinix, Ventas, or Welltower, could prove to be a wise decision.
Analyst comment
Positive news.
As an analyst, the real estate market is expected to provide a promising opportunity for investors. With the expectation of declining interest rates in the next 12 months, allocating a portion of one’s portfolio to real estate, particularly through REITs like Realty Income, Prologis, Equinix, Ventas, or Welltower, could prove to be a wise decision.
