One of the most puzzling developments over the past 18 months is the wide gap between public and private real estate. Many publicly traded REITs are down between 30% and 40% from their highs in 2021, while private real estate funds are flat or have losses in the single-digits.
There are a variety of theories to account for this disconnect, including expectations of mounting losses in commercial real estate (CRE) given that office occupancy rates are not returning to pre-pandemic levels. However, it’s also fair to note that in recent months publicly traded REITs have outperformed and somewhat shrunk the gap. In Institutional Investor, Hannah Zang covers why many investors are seeing an opportunity in REITs and believe that the market is overreacting to weakness in CRE especially given that it only accounts for 3% of the total REIT market.
Currently, the cap rate for REITs is 50 basis points higher than private real estate. Historically, this has indicated a buying opportunity in the sector especially as some of the macro headwinds of the sector seem to be dissipating with the vast majority of real estate prices holding steady and the Fed in the final innings of its rate hike cycle.
Finsum: There’s an interesting divergence between private and public real estate. However, many investors see opportunity in publicly traded REITs and believe that investors have overreacted to macro and CRE issues.
- bear market
- real estate
- rate hikes
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.