Janus Henderson says there are signs of recovery in real estate stocks and the new cycle should last a few years. CBRE’s U.S. real estate transaction volume appears to be growing for the first time in more than two years, Janus portfolio managers Greg Kuhl and Danny Greenberger reported on Nov. 11. They point out that CBRE is the world’s largest real estate brokerage and a leader in corporate real estate. Additionally, CBRE reported a 20% increase in U.S. investment sales revenue. Kuhl said an increase in trading volume is usually an excellent sign of a turning point in the cycle. “The resurgence in deals… highlights the multiple avenues for (real estate investment trusts) to contribute to earnings growth, enhance asset value prospects and ultimately the potential for higher share prices and increased dividends in the new cycle,” the report states. In an interview with CNBC, Er said the main issue in real estate over the past few years has been valuations as publicly traded REITs will reprice in 2022 for higher interest rates. This year, REITs are starting to perform well, although the 10-year Treasury yield remains above 4%. The FTSE NAREIT Equity REITS index, which tracks U.S. commercial real estate and is the benchmark used by Janus for its U.S. Real Estate ETF (JRE), is up about 14% so far this year and has a dividend yield of 3.59%. JRE YTD mountain Janus Henderson U.S. Real Estate ETF “What you’re seeing is the market being forward-looking and saying, ‘Look, we’re starting a housing cycle,'” Kuhl said. He added: “Many investors are more confident that the bottom has been reached, so from here we can focus on the fundamentals, which are good and that should lead to decent growth year after year.” “Then if If interest rates do come down a little bit, that’s even better and there’s going to be more upside,” he said. Another factor to keep in mind is that real estate cycles last about seven to 10 years. “If you look at the last few cycles, the first five years of those cycles have been very good for REITs,” Kuhl said. “The overall cycle is good, but from a performance perspective relative to other types of real estate ownership, the beginning of the cycle is the best time.” Kuhl said the biggest opportunity in the industry right now is senior housing real estate investment trusts. For one, the population is aging as people live longer. “The growth of the 80-plus population will accelerate significantly over the remainder of this decade,” he said. Additionally, there are supply issues. Kuhl explained that the high interest rate environment of the past few years meant companies wouldn’t borrow money to build new buildings, so there was little growth in property supply. Senior housing is an extreme example. “Almost nothing is being built in this country for these people right now,” Kuhl said. “At the same time, there’s a huge push in demand that’s very clear and about to happen. So it’s a very good story.” Furthermore, he added, even once the building plans are completed, the process of purchasing the land and executing all the planning, permitting and construction It still takes time. He said it would be a process of at least three years. “That means it won’t be until almost the end of the century for most property types to see supply again,” he noted. Another good subsector right now is data center real estate investment trusts, Kuhl said. It’s a demand story, as massive supply is now being built to handle the AI boom. “If you can get power and build data centers in most markets in the country, then you can rent it out,” he said. However, he added that some stocks are fully valued, so investors should be selective. Kuhl also sees some opportunities in industrial, office and shopping mall real estate. Office REITs, for example, are a small part of Janus’ portfolio, but the rout in the sector has created some opportunities, he said. “The stock market is down so much that you can see the fundamentals in some markets are no longer getting worse. So occupancy is stabilizing,” Kuhl said. For example, New York is the best market “by far,” but the West Coast isn’t showing the same signs of recovery, he said. Industrial REITs have also underperformed this year as demand slows and supply increases. However, he said supply growth has peaked and is declining as the economy moves into next year. “The problem is demand,” Kuhl said. “If demand stays the same or picks up a little bit, I think industrials will be an interesting story as we get into 2025,” he added. “It’s already discounted compared to history, as the year goes on Over time, you’ll probably see the fundamentals get better.”
Janus Henderson sees opportunity for property stocks recovery | Real Time Headlines
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