Prospects are promising for REITs in 2025 according to a new global report from Hazelview Investments.
For Canadian investors, the seniors housing market looks to be one of the brightest spots.
“We think there’s a telling demographic for senior housing. We think the growth of the 80-plus-year-old population cohort is going to lead to strong demand for senior housing units and the lack of supply; the lack of new construction, is near a multi-year low,” Samuel Sahn, managing partner, portfolio manager for Toronto-based Hazelview, told RENX.
“That typically is a great recipe for success in growth in occupancy, growth in rents, growth in NOI margins, growth in EBITDA and growth in earnings.
“When we look at the landscape of 2025, we like the market broadly but in particular, we have a very favourable view of REITs.”
That seniors population is projected to grow at a 4.8 per cent compound annual growth rate (CAGR) through 2042, according to Hazelview’s 2025 Global Public Real Estate Outlook report, citing figures from Cushman and Wakefield.
The sector was heavily affected during COVID but in 2024, it began to recover, according to Sahn. The turnaround is expected to gain more steam in the coming year.
“Senior housing, we think, has a lot more recovery potential because of what happened during COVID, because occupancy fell by so much, because rent obviously did soften, and operating margins got hurt from higher expenses as a result of all the things that operators needed to do to make their facilities COVID-compliant,” Sahn explained.
Change in bank policy reverses fortunes
One of the biggest factors in this market recovery happened when world central banks “pivoted from tightening to easing” during the second half of 2024, he said. And it affected the wider REIT segment.
“We think that shift in monetary policy created an inflection point for the sector and since then, we’ve seen better performance out of REITs. We’ve seen an improvement in investor sentiment and our expectation is that after three years of underperformance for broad equities, the relative valuation characteristics and the absolute return potential of the asset class is extremely attractive.”
Overall, the growth rate projected for REITs is impressive, the report states.
“As we look forward to 2025, the big takeaway is the foundation and fundamentals, the attractive growth that the sector is going to deliver of over six per cent globally, combined with a better and more favourable rate environment and recovering asset value is going to cause REITs to generate a double-digit return over the next 12 months,” Sahn said.
Globally, REITs generated a 4.6-per-cent return in 2024 – though it had been clipping along at 11.2 per cent for the first 11 months. The final number was tempered in December after the U.S. Federal Reserve signalled a more cautious stance for the next year, the report says.
“What stood out to me was when you look at the relative valuation of global resources, global equity, when you look at the landscape of investment opportunities around the world, REITs are trading near historic lows,” he said.
“They are trading at lower levels than the financial crisis. They are trading at lower levels than during COVID. They’re trading at lower levels than during the European debt crisis, and that relative valuation construct typically does not persist into perpetuity.”
According to the Hazelview report, the 2024 REIT rate of return bested bonds, which saw a loss of 1.7 per cent. However, this paled alongside the returns for equities, which stood at 19.2%.
In Canada, the value of REITs grew by 1.1 per cent last year.
Strong outlook for data centres
Another area that is primed for more growth this year, the report forecasts, is in data centre investment.
Leasing activity in North America grew by 58 per cent year-over-year and with the growth in demand for AI for example, this figure will go even higher, according to Hazelview.
“Hyperscale customers are demanding bigger and bigger facilities. It’s putting stress on power and utilities, and that’s leading to higher rent. As we look at the landscape, we’re going to see more data centre development and we think that’s great for the companies that we can invest in that already own an existing portfolio,” Sahn said.
While this growth looks to continue being strong, there are a few concerns for investors to be aware of.
“I think the only risk is that if they have trouble securing power to development projects that they were hoping to get off the ground, it may be delayed but generally we’re seeing tenants look to lease space two to three to four years ahead of when they think they may need,” Sahn observed. “So as of right now, the backlog looks pretty strong, but that’s something that municipalities, government and the industry are going to need to work on together.”
“Now’s the time” for real estate investment
So what is the general advice to REIT investors for 2025?
“Our view is for investors who don’t have exposure to publicly listed real estate today, now’s the time to do so,” Sahn said.
“For investors who do have real estate exposure, or have exposure to REITs already, I think it warrants a review of what your overall allocation to REITs is, and if there is a potential for that allocation to increase, what investors should do is they should buy into the underperformance of an asset class because typically, what we see is reversion to the mean over time.”
