Australia’s listed real estate investment trusts (A-REITs) have seen a significant shift in investments since the interest rate rise, triggered by the Reserve Bank as a means to combat inflation. With these higher interest rates, investors saw a lower return premium between their capitalisation rates and bonds. Over the last 18 months, A-REITs have been sold down, with a 20% negative total returns in 2022, and 4% in January 2023-October 2023. Typical premium on certain commercial property classes shrunk by more than 50%, from 200 basis points to under 100 basis points.

There has been talk by some analysts that in spite of these recent challenges, investors should consider returning to the sector in 2024. These claims are being backed up by their belief that an interest rate hike is on the horizon in February, predicting a potential turn around for A-REITs. Citi Research suggests that looking at A-REITs outperformance in the past, relative to the S&P/ASX 200 index will start between 0 and 4 months before the first RBA rate cut. Keeping this in mind, analysts have put forth that investors may consider re-entering the A-REIT market in the second half of 2024. Australian Unity’s head of research, Damian Diamantopoulos emphasises the resilience in commercial real estate of income-generating properties.

Two A-REIT’s which experts are keeping an eye on as we go into 2024 are Scentre Group and Mirvac Group. Although shopping malls have been vastly an undesired investment, Scentre Group has a well established portfolio of retail shops. Mirvac Group’s share prices have steadily risen over the last month with shares coming in at $1.85 on November 1st to $2.095 as of December 8th.

In spite of A-REITs’ tumultuous year, and investors’ trepidation towards stock purchases, analysts are confident of future potential opportunities in this market. Further strengthening the market’s future potential is the resilience of income-generating commercial properties, underscored by the long term value of A-REITs. The intrinsic value proposition, historical trends, and anticipation of policy changes, poses renewed investor confidence in A-REITs. 2024 presents the potential for a positive shift in Australian real estate investments and growth of portfolios across the commercial sector.

Anacle Systems supports REIT managers across the Asia Pacific with an investment management platform for lease administration, property accounting, straight-line rent and recoveries, facilities management, business intelligence, online payments and other operations. Automating processes for shorter month- and quarter-end work cycles and data-driven insights.

Sources:
https://www.afr.com/wealth/investing/is-now-the-time-to-buy-reits-20231122-p5em52
https://www.ibisworld.com/au/industry/real-estate-investment-trusts/5551/#IndustryStatisticsAndTrends
https://www.bdo.com.au/en-au/insights/real-estate-construction/a-reit-survey-2023
https://propj.com.au/content/research/opinion-and-analysis/a-reits-what-the-market-gloom-is-missing/
https://propj.com.au/content/research/is-there-more-pain-in-store-for-a-reits/