Cedrik Lachance, director of research at Green Street, was a guest on the latest episode of Nareit’s REIT Report podcast. He discussed key priorities for the REIT sector, opportunities for growth, valuation levels, IPO prospects, trends in Europe, and more.
Lachance said that with the REIT market bestowing “pretty meaningful premiums in some sectors, we expect to see a fairly aggressive deployment of capital” from companies in the data center and health care sectors, self-storage, and to some extent retail. He added that there are also companies in the office sector trading at premiums to NAV and “that's going to influence how they allocate capital.”
Green Street sees the strongest rent growth potential in data centers. “That story has been well told, but it remains an area where we think there's meaningful upside,” Lachance said.
As for other REIT sectors, the senior housing business is in the midst of a continued important recovery, where “meaningful” gains in occupancy and pricing power are likely, Lachance said. Meanwhile, for the last year-plus, “we continue to see retail do a little bit better than expected on pushing rents.” Lachance also added that “positive surprises” should emerge in the office sector.
Lachance emphasized that REITs can be a “great way” to complement a private real estate portfolio with sectors that are more difficult to access on the private side, and are a “fantastic way” to arbitrage values between the public and the private markets.
“The REIT signals that exist, and the ability to play in both public and private [markets], can create significant value. I think large investors should be very attuned to those forces and take advantage of them as best as they can,” he said.