US Real Estate Market Review: Second Quarter 2024
The US real estate market experienced a mixed bag in the second quarter of 2024, with some sectors thriving while others struggled. Despite record highs in US equities, real estate investment trusts (REITs) saw muted performance, initially declining due to scaled-back expectations for interest rate cuts but later recovering as inflation data eased.
Sector-wise, lodging, industrial, and office REITs underperformed, with industrial REITs posting negative double-digit returns due to weak demand trends. On the other hand, apartments and healthcare REITs posted solid results, driven by merger-and-acquisition activity and robust demand trends.
The top contributors to relative performance included 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.
During the quarter, we added exposure to the industrial sector following a heavy sell-off in April, introducing a new position in a Sun Belt landlord and a US mall owner. We also added a new position in a US manufactured housing owner, which we believe offers differentiated exposure to smaller tenants and geographic concentration to a market characterized by stronger fundamentals.
In storage, we initiated a relative-value-driven change in our exposure, selling Extra Space Storage and adding one of its larger peers. We believe public REITs continue to offer reliable and growing income streams, supported by strong balance sheets, high-quality properties, and astute management teams.
Our top holdings include Equinix, Welltower, Public Storage, Prologis, and Sabra Health Care REIT, among others. We believe these characteristics could potentially reward investors with current income and growth over time.
Please note that past performance cannot guarantee future results, and investing involves risk, including the possible loss of principal and fluctuation of value. Returns greater than one year are annualized, and all returns reflect the reinvestment of dividends and other earnings.
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