Nareit and Bloomberg Intelligence held a wide-ranging webinar discussion Jan. 23 on the outlook for the REIT industry in 2025, including sector specific expectations, capital market activity, and more.
Bloomberg Intelligence REIT and equity analysts Jeff Langbaum and Lindsay Dutch moderated the webinar, which featured John Worth, Nareit’s executive vice president for research & investor outreach, Gina Szymanski, managing director & lead portfolio manager at AEW, and Rick Romano, managing director, head of global real estate securities at PGIM Real Estate.
Worth set the stage with a recap of REIT performance in 2024, noting that REIT returns of 4.9% were positive, but well below their historical average of nearly 10% per year. Specialty real estate was the best performing sector in 2024, while industrial and telecommunications were the weakest. Meanwhile, REITs had “meaningful issuance” in the capital markets last year that totaled $87 billion. Low leverage and access to capital are likely to be strong positives for the sector in 2025, he said.
Romano and Szymanski commented on how they are positioning their portfolios for 2025. Romano said the macro backdrop involves a 10-year Treasury that has been “stickier than I think people thought.” However, “if you think that potentially rates could be higher for longer…we could have higher (REIT) earnings growth for longer and reacceleration in certain property types.”
Szymanski underscored that 2025 could be marked by potential interest rate volatility, making it important to have a portfolio that incorporates sectors with structural growth that can withstand market ups and downs.
Turning to valuations, she said that if the 10-year Treasury stays at current levels, private appraisal values could potentially fall by up to 20%. Romano added that if private real estate valuations do head lower, that could ultimately present opportunities for REITs.
As for capital market activity, Szymanski noted the potential for increased debt and equity issuance by REITs this year. She pointed out that in 2024, investors rewarded those REITs that issued equity for offensive purposes.
Eyeing particular property types, Romano said industrial valuations look “a lot more attractive” than they did last year. Symanski concurred that industrial is in a better spot now in terms of valuations, but added that they are still “a little expensive.”
AEW is more neutral on the office sector, but it will be “tough” to move occupancy levels to the 90% range where pricing power kicks in, Szymanski stated. Romano noted that New York City was the first office market to show green shoots, and the question now is whether that market is being priced more rationally.
For health care real estate, the recovery will continue, according to Szymanski, given strong demand and low supply.
In the data center sector, rent growth of 10% per year could be the trend for the next two to three years, perhaps longer, Romano said, given the “huge” supply/demand imbalance. As for residential, Szymanski discussed how AEW has moved more towards a Sunbelt regional exposure, despite lingering supply issues. Looking ahead, Romano noted that a reacceleration of growth for the sector could occur, with apartment supply “really starting to fall off a cliff” heading into 2026 across all markets.
As for M&A, Romano pointed to “broad based opportunities” for privatization in 2025. Worth emphasized, however, that consolidation in recent years has been more prevalent on the REIT to REIT side, rather than privatization. “We think that, over the long term, that’s probably more of a meaningful trend for REITs to get to scale, lower their overall cost of capital, spread fixed costs over a wider base, and be able to deliver solutions to tenants,” he said.
To watch the webinar on-demand, please register here.