U.S. Real Estate Market Sees Mixed Performance in Q2 2024
Despite reaching record highs, the U.S. real estate market experienced a mixed bag of performance in the second quarter of 2024. While some sectors, such as apartments and healthcare, posted solid results, others like lodging, industrial, and office struggled, with negative double-digit returns.
The FTSE Nareit Equity REITs Index, which tracks the performance of U.S. equity real estate investment trusts, returned 0.06% for the quarter, underperforming the broader market. The Janus Henderson U.S. Real Estate ETF, which seeks to provide total return through a combination of capital appreciation and current income, returned -0.81% at net asset value (NAV) and -0.94% at market price.
The quarter saw a boom in technology stocks, led by artificial intelligence, and robust corporate results, which boosted investor confidence and drove U.S. indices to record levels. However, signs of a weakening economy and easing inflationary pressures led to expectations of interest rate cuts later in the year, which impacted the real estate sector.
Sector performance diverged notably, with apartments and healthcare posting solid results, driven by merger-and-acquisition activity and robust demand trends. Storage REITs also outperformed, suggesting that heavy pricing discounts offered over the past year may be beginning to stabilize.
Among the top contributors to relative performance were positions in multi-family REIT UDR and healthcare REITs Sabra and Welltower. Conversely, Mexican industrial property company Vesta detracted from performance following the surprise results of the Mexican election, which heightened fears of undemocratic constitutional changes.
The fund introduced new positions in a Sun Belt landlord and a U.S. mall owner, and added a U.S. manufactured housing owner following a period of underperformance. The fund also sold out of a leading single-family property owner, leasing operator, and build-to-rent developer, citing higher capital expenditures and a full valuation.
While the private commercial real estate market can dominate media headlines and is typically slower to adjust reported values to reflect higher rates, the listed market has already reacted given its real-time pricing. Increased confidence that we have reached peak interest rates is therefore likely to prove a key moment for the listed property sector, which continues to trade at a discount to private market values.
The fund’s top holdings include Equinix Inc, Public Storage, Welltower Inc, Prologis Inc, and Sabra Health Care REIT Inc, among others. The fund’s objective is to provide total return through a combination of capital appreciation and current income, and it seeks to achieve this through a diversified portfolio of U.S. real estate securities.
Investors should consider the charges, risks, expenses, and investment objectives carefully before investing. Real estate securities, including REITs, are sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, supply and demand, and the management skill and creditworthiness of the company.
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