Paul Meierdierck

The impact of the Iran conflict and higher oil prices on economic growth, inflation and the path of interest rates are ultimately uncertain and pressuring near-term sentiment for markets. But despite these near-term headwinds, LaSalle Investment Management portfolio manager, Paul Meierdierck said the long-term outlook for REIT investors remains compelling.

“While we acknowledge market dynamics can change quickly and geopolitical events are fluid, we typically view geopolitical events such as these as part of the “wall of worry” markets typically climb over time, with pullbacks presenting potential longer-term investment opportunities.

“The global listed real estate market entered 2026 in a more supportive phase due to improving macroeconomic conditions, moderating supply and attractive valuations, creating a compelling long-term outlook for REIT investors,” said Meierdierck.

Listed real estate is currently trading at attractive levels relative to both broader equities and private property markets.

“REITs are trading at more than a 20 per cent discount to broader equity market and valuations look quite compelling today,” Meierdierck said.

“Real estate has materially repriced and public REITs are now offering what appears to be a margin of safety relative to broader equities, while also trading at discounts to private real estate.”

Meierdierck said the sector is beginning to benefit from a broader rotation in equity markets, with value assets such as REITs, gaining renewed attention after several years where growth stocks dominated performance.

“For much of the past decade, growth significantly outperformed value and REITs were caught up in that trend,” he said. “What we are seeing now is the early stages of a rotation where value sectors are starting to regain investor interest, and that’s beginning to show up in the listed property market.”

Meierdierck said macroeconomic conditions are also becoming more supportive for real estate investors.

“Until the Iran conflict, interest rates had largely stabilised after a period of significant increases, and continue to remain within recent ranges, while credit spreads remain tight, and inflation expectations are well anchored. Together, those factors create a much more constructive environment for real estate than we have seen over the past few years,” he added.

Declining supply supports fundamentals

At the same time, underlying property fundamentals remain strong, supported by declining new supply.

“Real estate supply continues to moderate while demand is stabilising. We’re reaching the point where new construction deliveries are slowing materially, which should support rent growth and occupancy across a number of sectors.”

He flagged warehouse and residential property markets as examples of this dynamic.

“Industrial supply increased rapidly during the low-interest rate period after the COVID-19 pandemic, but that excess supply is now being absorbed and deliveries are expected to bottom out this year.

“Markets tend to be forward looking, and we’re already seeing industrial property begin to outperform in anticipation of that tightening supply environment.”

Opportunities emerging in discounted sectors

While data centres and healthcare remain long-term growth sectors, Meierdierck said that the most compelling opportunities today are often emerging in areas where valuations have been heavily discounted.

“Healthcare has delivered very strong growth, but valuations already reflect much of that optimism. In contrast, sectors like offices, apartments, and self-storage are beginning to show improving fundamentals while still trading at significant discounts.”

He added that office markets in key global cities are stabilising as companies complete the process of adjusting to hybrid work models.

“Corporates have largely completed the process of rightsizing their office footprints. In prime locations like Manhattan and London’s West End, we’re seeing a more broad-based recovery in demand, which is creating selective investment opportunities.”

Meierdierck also highlighted digital infrastructure as a long-term opportunity, particularly data centre platforms that control key network connectivity locations.

“As digital connectivity and AI adoption continue to accelerate, companies that own highly connected data centre locations are in a very strong position. These sites form the backbone of digital infrastructure and provide a highly defensible competitive advantage.”

Recovery still in early stages

Overall, Meierdierck said the combination of improving fundamentals and discounted valuations provides a favourable outlook for the asset class.

“Listed real estate has already experienced a significant repricing, but the recovery is still in its early stages.

“With REITs still trading at a substantial discount to broader equities, we believe there is meaningful room for further upside as the cycle continues to normalise,” said Meierdierck.

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Matthew Sgrizzi

As investors position their portfolios for greater geopolitical and economic uncertainty, real estate investment trusts (REITs) are well positioned to potentially outperform alternatives, underpinned by undemanding valuations and solid fundamentals, while some REITs may even benefit from the impact of US trade tariffs and inflation in construction costs, according to Matthew Sgrizzi, CIO and portfolio manager at LaSalle Investment Management Securities.

According to Sgrizzi, global real estate is well positioned to weather the current environment for three key reasons. First, real estate possesses inherent structural characteristics that provide resilience. Values are underpinned by defensive and durable cash flows, often secured by long commercial leases.

“In addition, REITs may benefit from any rise in construction costs. US tariffs are likely to drive up the cost of construction in any country that raises tariffs on key construction inputs, and that could push up the rents required to justify new development in numerous locations where tariffs have an impact, which could favour REITs with existing assets.

“Second, these structural factors are reinforced by mostly healthy conditions in global real estate markets. Falling supply levels, a repricing process, and conservative overall leverage levels in most segments of global REITs could all favour the performance of global real estate in the months and years to come, despite growing uncertainties around global trade and geopolitical uncertainties arising from ongoing wars.

“Third, real estate valuations appear undemanding and less stretched than those of several other major asset classes, especially large-cap equities. Real estate has underperformed general equities in recent years, cumulatively underperforming by around 30 per cent since the end of 2021. As the environment has shifted, it is possible that real estate’s underperformance could reverse over the short to medium term and REITs could potentially outperform equities which are facing increased volatility given the new government in the US and rising geopolitical tension,” he said.

According to Sgrizzi sectors like industrial and logistics real estate are likely most directly affected by US trade tariffs, but that the impact may be short-lived.

“Thankfully, the long-term context of logistics real estate is one of positive structural growth, which means this impact takes the form of a downgrading, not a devastation, of the sector’s prospects. Moreover, in the long run, global economic fragmentation could lead to greater supply chain redundancy and therefore increased aggregate space demand,” he said.

Other examples of real estate sectors facing impacts directly tied to tariffs include US power centres exposed to discretionary expenditure on largely imported goods. “There are also potential direct impacts on real estate from other Trump policies beyond tariffs, for example around reputational issues that seem to be suppressing inbound and outbound tourism, as well as changes to scientific research funding,” said Sgrizzi.

“Sectors with a high degree of economic sensitivity, such as hotels could also be impacted, and are likely to see an outsized negative hit to demand in the event of an economic downturn.  Meanwhile, economic impacts should be limited for sectors with low fundamental sensitivity to GDP growth, such as medical offices, cell towers and data centres.

Relative impacts are potentially the reverse for sectors with a high degree of interest rate sensitivity said Sgrizzi.

“An economic downturn usually leads to lower interest rates – although recent market movements suggest that is not necessarily a given. The impact of lower rates on the more interest-rate sensitive parts of the real estate market could enable them to absorb some or even all the effect of softer demand. These property types are generally those with longer leases, such as the mainstream commercial sectors,” he said.

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Matthew Sgrizzi

Real estate investment trusts (REITs) could be on the cusp of a new “golden era” in 2025, despite recent challenges in the sector, according to Matthew Sgrizzi, CIO and portfolio manager at LaSalle Investment Management Securities.

Mr Sgrizzi and his team at LaSalle have identified four common elements that have preceded strong performance by REITs: a dislocation of bank lending to real estate; broad-based negative sentiment around real estate; underperformance versus broader equities; and an easing or reset of financial conditions.

“Pattern recognition is a useful approach that can help in predicting regime shifts in market conditions. Our study of historical periods of listed REIT under- and outperformance identifies a clear pattern. Namely, there are four common factors that have driven REIT strength after a period of challenges,” said Mr Sgrizzi.

“The current environment resembles the set up for these historical golden eras, suggesting REITs may be on the cusp of its next golden era of investment. Many of the factors supporting the REIT market’s upbeat prospects are also positives for real estate as a whole. For example, an easing in financial conditions has historically been a driver of strong forward REIT returns, as well as those for private equity real estate.”

According to Mr Sgrizzi, the past few years have seen a significant retrenchment in bank lending to real estate. According to the US Senior Loan Officer Survey, the net balance between demand for loans and banks’ willingness to lend points to the widest undersupply of credit in the past ten years, except for during the depths of COVID-19.

“This situation presents an opportunity for REITs, given their strong financial positions. Global REITs entered the recent tightening cycle with their lowest leverage levels on record, and nearly 90 per cent of their debt on fixed rates and an average remaining term of seven years,” he said.

In terms of REIT underperformance relative to broader equities, this has reached typical peak historical levels before reversal. “Periods of underperformance have historically tended to reverse and this instance is no different with the performance gap already narrowing,” Mr Sgrizzi said.

In addition, a global monetary easing cycle is now well underway, which historically bodes well for REITs.

“Real estate is a capital-intensive business that is sensitive to changes in financial conditions, an observation that holds true for both directions of interest rate change. The downside of this was evident in 2022 and 2023, but the upside is likely coming into play. A global monetary easing cycle is now underway, with several central banks cutting rates. Historically, REITs perform well well in periods leading up to and following a central bank easing cycle.”

Over the past 25 years, REITs have produced total returns of 8 to 9 per cent per annum. Looking ahead, Mr Sgrizzi projects that his base case underwriting for the next three years is for the REIT market to produce total returns in line with those historical averages, with roughly four percentage points of that coming from income.

“If financial conditions were to ease further, these return expectations could increase to the mid- to high teens range per annum, which aligns with previous ‘golden era’ REIT performance,” he said.

“Investors are advised to consider REITs as part of a diversified portfolio, particularly given the sector’s current valuations and potential for recovery in the evolving economic landscape. While history does not repeat itself, it does often rhyme, and we believe we are on the cusp of the next ‘golden’ era,” he said.

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