Overall, it appears that we have entered a period similar to the one that unfolded in the early days of the pandemic, when volatility in the public markets set the stage for REITs to deliver strong outperformance. The global REITs market, as defined by the FTSE EPRA Nareit Developed Index, has sold off by 31.8% yearto-date (as of Oct 11). Tight monetary policy by central banks across the globe has caused valuation compression among public REITs, while having a much smaller impact on the private real estate market.
This year has brought a sizeable disconnect between the value of publicly listed REITs and private real estate. The disparity has been fuelled by a combination of factors: inflationary pressures, a hawkish response to high inflation by the Fed, heightened geopolitical tensions, including the Russian invasion of Ukraine, and fears of a recession. The conditions that brought considerable volatility in equity markets have had a negative impact on REITs’ valuations that, upon close inspection, does not seem warranted.
The current market conditions have created an extraordinary public real estate market arbitrage opportunity across many property sectors, particularly among those with strong fundamentals and strong demand from real estate buyers.
