2025 Global Real Estate Outlook

Investing.com — In its report titled "2025 Global Real Estate Outlook," RBC Capital Markets anticipates diverging paths for Canadian (CDN) and U.S. REITs in 2025, influenced by valuation dynamics, monetary policy shifts, and sector-specific fundamentals.

Canadian vs. U.S. REITs

Canadian REITs underperformed their U.S. counterparts in 2024, with the S&P/TSX REIT index gaining just 1% year-to-date compared to the MSCI U.S. REIT index's 13% rise. However, RBC sees a stronger 2025 setup for Canadian REITs, driven by attractive valuations and anticipated monetary policy easing from the Bank of Canada (BoC).

> "With most subsectors still positioned to deliver decent earnings growth, valuations looking increasingly appealing, and more sizeable anticipated monetary policy easing by the BoC, we see support for stronger CDN REIT returns in 2025," stated RBC analysts led by Pammi Bir.

Conversely, U.S. REITs are facing stretched valuations and persistent headwinds from rising bond yields, likely delivering flat to slightly positive total returns next year, potentially lagging behind the broader U.S. equity market.

Sector-Specific Prospects

The outlook highlights promising prospects for Canadian seniors housing, buoyed by accelerating demand and muted new supply. RBC anticipates an average growth of 11% in same-property (SP) net operating income (NOI) for retirement homes in 2025, while long-term care facilities are expected to see NOI growth between 1% and 2%.

Canadian industrial REITs are projected to benefit from significant mark-to-market opportunities, despite near-term pressures from rising availability rates and moderating demand.

In the U.S., healthcare REITs excel with a "healthy operating environment and solid long-term outlook," particularly those with substantial SHOP portfolios. Net lease REITs are expected to see acquisition volume growth as capital costs improve, although their performance will be dependent on yield curve movements.

Other subsectors, like U.S. industrial and storage, might continue to face pressure into mid-2025 due to demand uncertainties.

Investment Recommendations

RBC's global REIT basket considers sector fundamentals, growth prospects, and valuations. Notable picks for Canada include:
– Dream Industrial REIT (TSX:DIR_u) (DIR)
– Boardwalk REIT (TSX:BEI_u) (BEI)
– Chartwell Retirement Residences (TSX:CSH_u) (CSH)

For the U.S., highlighted selections include:
– Gaming & Leisure Properties (NASDAQ:GLPI)
– Healthpeak Properties (NYSE:DOC)

American Healthcare REIT Inc (NYSE:AHR) (AHR) is noted for having the best growth prospects in the sector and the industry.

Challenges Noted

The report warns of challenges in Canadian office markets, where leasing velocity is sluggish, as well as in U.S. manufactured housing, which faces stock selection difficulties despite favorable fundamentals.