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Global REITs have been overwhelmed by the rapid rise in interest rates, headlines about the demise of the office, and concerns over bank lending to commercial real estate. However, history is not repeating. These issues mask the reality of an industry in strong shape. With lower financial leverage, well-laddered debt maturities and diversified sources of debt, GREITs’ capital structures are well positioned. The office sector has shrunk to less than 10% of the global REIT benchmark and in its place are sectors such as data centres, healthcare and logistics that are benefiting from long-term secular growth trends. Rising construction costs and lower risk appetite have curtailed new construction volumes while demand remains focused on modern, sustainable buildings. As a result, economic rents needed to justify new construction are rising and many segments of the commercial real estate market could face undersupply conditions in the medium term. Consequently, GREIT valuations are relatively attractive, trading at a discount to private market real estate values and, in some cases, below replacement costs. Hence, as a store of wealth with a growing income stream, GREITs now warrant more allocation.

Although the consequential volatility casts a VUCA cloud over global REIT performance, the silver lining is that this is transitory, in part reflecting a number of the sector's key attributes.

Andrew Parsons | 0.50 CE

The future ain't what it used to be – that's just noise. Listed Global REITs provide investors with a competitive return profile and diversification from equities, a compelling reason for allocations in portfolios.

Andrew Parsons | 0.50 CE

The outlook for the REITs vs cash, risks and opportunities, and portfolio construction implications...