
Canadian REITs Poised for Strong Growth in 2025: Hazelview
Canadian REITs are set to experience strong growth in 2025, says a new Hazelview report released Tuesday.
Seniors housing REITs are expected to lead the way as the sector capitalizes on strong demand and low supply. Canadian REITs are set to benefit from the series of Bank of Canada interest-rate reductions that occurred in the second half of 2024, said Corrado Russo in an interview with Connect CRE Canada.
“I do think there is a lot of demand to own, and continue to invest in, real estate,” he said. “I also think there’s capital sitting on the sidelines. I think what’s been keeping people back basically, was the uncertainty around how high interest rates [would] go and when that [would] stop. Today, it’s more about: Well, where do things settle out?”
Russo noted that some investors did not invest earlier in case rates fell further. The BoC has now signalled that it will hold off on further rate cuts.
“Once we can reassess where rates are going to stabilize, where the cost of capital and cost of debt is going to be, I think you will see the transaction market significantly improve in Canada,” he said.
Russo expects Canadian seniors housing REITs to experience continued long-term growth in earnings and occupancy. The sector is gaining from aging Baby Boomers who are looking to retire and seeking communities that offer great amenity packages and services, not just seniors housing or assisted living.
“As they continue to age, we see that demand getting even even greater in the coming years and, at the same time, supply has really fallen off,” he said. “Real estate is a game of supply and demand, and our expectation is that that will lead to continued rental growth. We think there’s at least a five-year runway.”
According to the report, the 80-plus age group is projected to grow at a compound annual growth rate (CAGR) of 4.8% through 2042, further boosting occupancy rates beyond pre-pandemic levels.
“Canadian senior housing REITs are uniquely positioned to outperform due to their cost-of-capital advantage, allowing them to pursue accretive acquisitions and deliver superior returns,” the report states.
Beyond Canada, Hazelview outlines a positive outlook for other sectors. Global data centres are expected to thrive, driven by ongoing digital transformation and the adoption of artificial intelligence. Meanwhile, commercial real estate brokers stand to benefit from rising transaction volumes and a growing reliance on outsourced property management services.
The report also notes opportunities in hotels in Japan, where recovering tourism and limited new supply are poised to bolster performance, as well as residential real estate markets in Australia and Germany, where strong rental growth and supply-demand imbalances offer promising returns.
The report underscores the resilience and attractiveness of global REITs despite a complex economic backdrop. With valuations currently at their most favourable levels relative to global equities in decades, Hazelview asserts that REITs present a compelling investment opportunity.
“This is the cheapest REIT environment globally I’ve seen in the [approximately] 30 years I’ve been doing this industry,” said Russo, who began his career in 1996.
Accordingly, Hazelview will be investing globally on behalf of clients in REITs operating in the areas that it has noted in its report.
“Some of the areas we like are data centers in the U.S. and in Asia, Hong Kong, for example,” said Russo. “We also like senior housing in the U.S. We think the demand, supply and demographics picture looks very similar to what Canada there.”
Hazelview is overweighting its capital to international REITs and being “very selective” in the Canadian market because Canada’s REITs are seeing less growth than counterparts in Asia and the U.S., he said.
“Most of our our investment today is overseas, where we see better growth, better expected return potential and the ability to add external growth in addition to internal growth via acquisitions and mergers,” he said.
While Canadian REITs have room for improvement, those in the U.S. have a “war chest” of opportunity to grow earnings on top of “pretty cheap valuations” and strong fundamentals.
“It would seem like one of the best opportunities I see to enter the global REIT space,” said Russo.
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