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REIT portfolio managers cite low supply and structural demand tailwinds
Managers pointed to Dodge Construction Network data showing aggregate construction starts at 1.6% of existing stock, among the lowest levels outside recessions.
Nareit reports that REIT portfolio managers expect continued support for the sector, pointing to a combination of low supply in many markets and ongoing secular demand in areas such as senior housing and data centers.
In interviews cited by REIT.com, Principal Asset Management director Todd Kellenberger said many REITs may benefit from positive mark-to-market on leasing activity, which could support earnings growth even if broader macro conditions fluctuate, and he added that real estate capital markets for REITs are open and well-functioning for growth initiatives like new development, redevelopment, and acquisitions.
Fidelity Stock Selector Mid Cap Fund co-manager Sam Wald highlighted that for most property types, supply remains low and supported by a multi-year fundamentals backdrop absent a demand shock. He referenced 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%, while he said demand has been better than expected with Real GDP growth still at 2% plus.
Chilton Capital Management managing director Matthew Werner said construction costs are still rising but that the economy has shown resilience, including job growth and retail sales, which he expects to keep supply and demand improving. Werner also noted that higher oil prices tied to the war in Iran have affected expectations for the Federal Reserve, changing consensus toward a potential rate hike rather than cuts, while he suggested the next two years could be a “goldilocks” scenario for most property types if the economy does not sharply deteriorate.