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REIT managers cite low supply, data centers and senior housing tailwinds
One manager pointed to construction starts running 1.6% of existing stock, well below the long term average, as demand and fundamentals stay supported.
REIT portfolio managers see tailwinds for the sector as supply remains low in many markets and structural demand continues to expand, particularly in alternative property types. Nareit reports that managers also expect leasing mark-to-market improvements to support earnings, even if broader macro conditions stay choppy.
Speakers highlighted that real estate capital markets for REITs are open and functioning, which they say can help growth initiatives including new development, redevelopment, and acquisitions. Nareit also cited managers saying that broad fundamentals point to a favorable backdrop for the rest of the year.
On the supply side, one manager said construction starts remain subdued, citing Dodge Construction Network data that aggregate construction starts are 1.6% of existing stock, one of the lowest levels in history outside of recessions and below the long-term average of about 2%. On the demand side, Nareit reports that real GDP growth is holding in a 2% plus range and is supporting strong demand across multiple subsectors.
Another manager argued that with construction costs still rising and the economy showing resilience, supply and demand should keep improving and that most property types could see a “goldilocks” environment over the next two years unless the economy turns sharply negative. Nareit also noted that higher oil prices tied to the war in Iran have shifted expectations around Federal Reserve policy, with potential rate cuts taken off the table and a consensus shift toward a possible rate hike.