Research Briefing | Sep 8, 2022

Global REIT market is pricing in a GFC-level correction in yields

We think the REIT market has overcorrected despite the headwinds from higher energy prices and inflation this winter. Global REIT implied yields currently suggest a GFC-level downturn, which is not consistent with our baseline macro or direct real estate market view.

What you will learn:

  • That said, the risk remains that sentiment in the near term may continue to deteriorate, pushing REIT implied yields higher. As such, our global strategy service recommends being neutral, rather than overweight, developed-market REITs at the current time.
  • Globally, commercial real estate markets are starting from a better position in this downturn relative to the GFC. Lending has been more conservative since the GFC resulting in lower loan-tovalue ratios and fewer speculative developments, while low vacancy rates have also been the norm during this cycle, as some sectors benefit from structural forces underpinning demand.
  • There are concerns, however, particularly in the office and retail sectors, where fundamental shifts in occupier demand continue to pose uncertainty (future of work and e-commerce), while the tightening in climate regulation is adding to capital expenditure requirements at a time when construction and financing costs are rising rapidly.
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