Laurel Durkay, head of global listed real assets at Morgan Stanley, was a guest on the latest edition of the Nareit REIT Report podcast.
Durkay said REITs today are “cheap” versus broader equities. “They do screen attractively versus private real estate. They look compelling versus where REITs have historically traded, and they look pretty fairly valued versus fixed income. The macro backdrop is favorable with interest rate stabilization and the increasing likelihood of cuts this year… I think valuations look attractive.”
Despite this backdrop, negative rhetoric about the real estate sector “and the potential for the other shoe to drop” persists, Durkay said. “Investors in Europe and Asia really do want to learn more about real estate, but it's hard to move past that conversation of the fate of offices in big U.S. cities like New York and San Francisco,” she noted.
Durkay highlighted powerful secular demand drivers that are driving cash flow in some of the newer REIT property sectors. “We have data centers, we have cell towers, we have logistics, we have health care. I think cashflow growth in just those sectors should range somewhere between 5% and 15% for 2024, which is different than the more traditional sectors within the broader real estate spectrum.”
Among other topics, Durkay noted that home affordability is at multi-decade lows. The potential for higher-for-longer mortgage rates, or at least a higher-than-the-past-decade mortgage rate, coupled with the undersupply of single-family homes, should serve as a long term growth driver for single-family rentals and the broader rental housing spectrum, she said.
“Right now, traditional multifamily supply in the U.S. is elevated…but longer term, I think the outlook is pretty strong,” she said.