Mounting inflation and interest rates have put significant pressure on several sectors â especially real estate. But some market watchers think things could be about to turn around. “I think it would be an opportune time to invest in real estate especially given that we are forecasting interest rates to decline over the next 12 months,” according to Kevin Brown, senior equities analyst at financial services firm Morningstar. He suggests that investors look to have 10% of their portfolio exposed to “real estate in some form, as a good rule of thumb.” “That exposure can come from REITs [real estate investment trusts] or direct ownership, or other real estate investments if you are a large investor. But REITs present a great and easy opportunity to the asset class which is otherwise difficult to invest in. With rate cuts anticipated, I expect REITs to outperform the broader U.S. market this year,” Brown told CNBC Pro on Feb. 14. Rick Romano, Head of Global Real Estate Securities at PGIM Real Estate, agrees, saying that REITs offer investors “a unique and fantastic” opportunity to invest across geographies and segments right now. Commercial property pick One segment Brown likes is commercial properties occupied by tenants such as drugstores, retailers, food outlets and gas stations. The diversity â and the fact that tenants are selling necessities â mean they are not overly sensitive to economic conditions and can post gains even if a recession hits, Brown said, naming Realty Income as a REIT to consider. Realty Incomes says its portfolio includes over 13,000 commercial properties with a 98.8% occupancy rate. “Realty Income has a triple net lease structure, which means their tenants are responsible for everything, [namely] all expenses that can be generated by the property. They are also a conservative tenant with low rents relative to the revenues generated by tenants so there’s a very low risk of it not receiving rent,” Brown said. He also flagged…
2024-02-20 18:20:00
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