With interest rates expected to come down in 2024, real estate — a sector beloved for its steady income payments — could see upside in the new year. The real estate sector in the S & P 500 ended 2023 with a gain of more than 8%, sharply underperforming the broad market index’s 24% advance. Rising interest rates were a drag on this segment of the market, as they not only raise the cost of borrowing for real estate investment trusts, but they also make the asset less attractive for income-seeking investors relative to Treasurys, for instance. Don’t forget that last year, investors could earn yields upward of 5% just by plunking money into a certificate of deposit or stashing it in a money market fund or Treasury bills. Now that the Federal Reserve has penciled in three rate cuts in 2024, REITs could see a pickup in investor interest, boosting their share prices in addition to the income. “I think REIT prices will go up if we have stable rates — you will have people rotate back into the sector,” said Morningstar analyst Kevin Brown. “When rates are low, a lot of income-oriented investors see that REIT dividend as very attractive, and they are willing to take the risks associated with equity investment to have this dividend payment.” Indeed, real estate was the top sector in the fourth quarter of 2023, up 17.6%, ending with a one-month pop of nearly 8% in December alone. The movements coincided with a period of substantial cooling for the 10-year Treasury yield, which topped 5% at its high in October and ended the year just over 3.8%. A keen eye The post-Covid trend of working from home and a slow return to the workplace have been a drag on office REITs. The Kastle Systems’ ” Back to Work ” barometer, which measures office occupancy in 10 major U.S. cities, stood at 51.1% on Dec. 18, down from 51.6% the prior week. Difficulties still loom for office REITs in 2024, according to Jefferies, but conditions are expected to improve. “While we expect [occupancy]…
2024-01-02 14:57:00
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