BCA warns investors to be cautious about real estate rally, recommending underweight position

From Investing.com: 2024-10-06 06:00:00

BCA Research warns investors to be cautious about the recent real estate sector rally, particularly in distressed sectors like Office REITs. The momentum may not be sustainable despite attractive dividend yields amid falling interest rates.

REITs historically outperform before the first rate cut but then consolidate gains shortly afterward. BCA notes that while balance sheets are healthy, net operating income is decelerating, and pandemic-related disruptions are creating distress in the sector.

Investors should underweight Industrial and Residential REITs due to manufacturing downturns, slow rent growth, and rising delinquencies. Office REITs also face challenges with high vacancy rates and growing distressed loans.

BCA recommends an overweight position in Specialized REITs focused on the digital economy. They advise maintaining an underweight stance on real estate in the near term, anticipating economic growth to slow and delinquency rates to rise across subsectors.



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