Investing.com -- In its report titled “2025 Global Real Estate Outlook,” RBC Capital Markets said it anticipates diverging paths for Canadian (CDN) and U.S. REITs in 2025, underpinned by valuation dynamics, monetary policy shifts, and sector-specific fundamentals.
Canadian REITs underperformed their U.S. counterparts in 2024, with the S&P/TSX REIT index gaining just 1% year-to-date compared to the MSCI U.S. REIT index's 13% rise. However, RBC sees a stronger 2025 setup for Canadian REITs, driven by attractive valuations and anticipated monetary policy easing from the Bank of Canada (BoC).
“With most subsectors still positioned to deliver decent earnings growth, valuations looking increasingly appealing, and more sizeable anticipated monetary policy easing by the BoC, we see support for stronger CDN REIT returns in 2025,” RBC analysts led by Pammi Bir said in the note.
U.S. REITs, facing stretched valuations and persistent headwinds from rising bond yields, are projected to deliver flat to slightly positive total returns next year, potentially lagging the broader U.S. equity market.
The sector-specific outlook underlines robust prospects for Canadian seniors housing, buoyed by accelerating demand and muted new supply.
RBC expects an average growth of 11% in same-property (SP) net operating income (NOI) for retirement homes in 2025, with net operating income growth for long-term care facilities expected to range between 1% and 2%."
Meanwhile, Canadian industrial REITs are expected to benefit from substantial mark-to-market opportunities, though near-term pressures include rising availability rates and moderating demand.
In the U.S., healthcare REITs stand out with a "healthy operating environment and solid long-term outlook," particularly among those with significant SHOP portfolios.
At the same time, net lease REITs are poised for acquisition volume growth as capital costs improve, but performance will remain tied to yield curve movements.
Other subsectors, such as U.S. industrial and storage, are likely to face continued pressure into mid-2025 due to demand uncertainties.
RBC's global REIT basket balances sector fundamentals, growth prospects, and valuation.
Notable picks include Dream Industrial REIT (TSX:DIR_u) (DIR), Boardwalk REIT (TSX:BEI_u) (BEI), and Chartwell Retirement Residences (TSX:CSH_u) (CSH) in Canada, alongside U.S.-based Gaming & Leisure Properties (NASDAQ:GLPI) and Healthpeak Properties (NYSE:DOC).
American Healthcare REIT Inc (NYSE:AHR) (AHR) is highlighted as among the picks with “the best growth prospects not only in the sector but also the industry in our view,” analysts said.
The report also cautions about challenges in Canadian office markets, where leasing velocity remains sluggish, and U.S. manufactured housing, which grapples with stock selection difficulties despite favorable fundamentals.