Christopher Battista
Global listed property remains in the “early innings” of a potential recovery. While rising interest rates have created a level of uncertainty in global markets, improving real estate fundamentals, constrained supply and attractive valuations are creating opportunities across sectors and regions, according to LaSalle head of product and strategy, Chris Battista.
Despite a more uncertain capital market backdrop, Battista says the backdrop for global REITs has improved significantly, with earnings inflecting higher while a valuation disconnect remains across many parts of the market.
“We think it’s still early innings, but we really see a strong opportunity in the REIT market looking forward.
“We’re finally seeing fundamentals inflect higher. We’ve had this tailwind for some time of declining or low levels of supply, and that is combining with a healthy demand backdrop given a resilient economy.”
Battista says one of the most important drivers of the outlook was the lack of new property supply across much of the market. In sectors such as retail and office, there has been little new supply for five or 10 years, while economic activity remains supportive of demand.
“Real estate supply is low, declining or almost non-existent in pretty much every sector outside of data centres. The dynamic has really shifted in favour of the landlord, and they’re able to capture that growth in market rent and accelerate their growth overall.”
Despite the improving fundamentals, Battista says that valuations across parts of the global REIT market remain attractive following a prolonged period of underperformance, particularly relative to broader equities.
“At the moment, when we were looking at this from a real estate perspective, real estate fundamentals are healthy. There’s no catastrophic event on the horizon. Supply is low, demand is healthy.
“We think earnings are bottoming out and accelerating. There’s a very large basket of opportunities for us to find the most attractive value.”
While data centres and healthcare continue to benefit from structural growth trends, he says opportunities are emerging in sectors that had previously been under pressure.
Office is one example, with concerns around AI’s impact on white-collar employment beginning to be challenged by increasing demand for office-using jobs.
“Contrary to fears, we’ve seen the growth of AI fuel the growth of job-using office demand, which is an interesting dynamic. Combined with limited new supply, this is beginning to support rental growth.
“You’re in a situation where there’s no supply, and you’ve got increasing and accelerating demand, and we’re finally seeing market rent growth in markets of the office sector, which is something we haven’t seen for several years now.”
Battista highlights residential property, cell towers and self-storage as areas where fundamentals had come under pressure but are beginning to stabilise.
Increasing M&A activity is also providing evidence of institutional investors identifying value in markets where property assets remain significantly discounted.
Battista says the combination of improving fundamentals, constrained supply, resilient economic activity and significant valuation dispersion meant the global property opportunity remained broad.
“There’s a very large basket of opportunities for investors to find the most attractive value,” he adds.