Investors looking to take advantage of the rebound in commercial property markets should consider investing in real estate investment trusts (REITs), as these vehicles have historically led the recovery of this market segment, according to CBRE Global Real Estate Securities senior managing director Steve Carroll.
“REITs have led the decline in commercial real estate historically by 12 to 24 months and they will lead the recovery,” Carroll said.
“Following periods of steep decline in the REIT market, whether it be the US REIT market in the early 90s following the over-building period or from 1997 to 2001 where we had a combination of events not just affecting global economies but commercial real estate and the REIT market … there have been significant periods of very strong growth,” he said.
In particular, the time to invest back into REITs could be now as CBRE believes it is increasingly likely that the bottom of the REIT market in terms of pricing was reached in early March this year.
There has also been a significant amount of capital raising activity among listed REITs that indicates the sector is in a good position to take advantage of undervalued commercial properties, Carroll said.
“REITs aren’t just positioning themselves for survival. There is now a growing number of companies that are positioning their capital structures to buy what we believe are going to be a lot of distressed commercial real estate that are going to come to market in the next 12 to 24 months,” he said.
“And the pricing levels are likely to be so attractive to a number of these REITs that it’s going to have a meaningful impact on their earnings growth and their capital value growth over the next three to five years,” Carroll said.
