BDO GLOBAL REIT REPORT

Like all real estate companies, REITs find themselves at a turning point at the beginning of 2018. Our survey of 35 companies from across the world with a combined market capitalisation of $130bn found that the majority felt the real estate cycle in their market was at or past its peak.

However, notwithstanding this, the REIT leaders interviewed were on the whole very confident about their ability to weather any oncoming headwinds for the real estate sector. Lowly geared and not overexposed to development, the sector looks much better placed to endure a downturn than before the onset of the last financial crisis.

As for where the sector as a whole heads from here, REIT leaders feel that the sector will continue the last decade’s trend of expansion in spite of the fact that depressed share prices in some countries will inevitably lead to privatisations and consolidation. But there was also a feeling that in order to appeal to shareholders beyond the traditional REIT specialists, companies in the sector need to be more true to their label and prioritise income returns over capital growth.

In terms of the specific issues occupying the minds of REIT senior management, the impact of interest rate rises was cited as the foremost short term issue. But again, while most felt that rates were set to rise soon, they also thought that REITs could stomach a rise of 100 basis points or more before this would start to have a significant effect on their business.

In the longer term, it is the impact of millennials’ aspirations within the workplace that they feel will have the biggest impact on their business models. Conversations with some of those very millennials reveal that above all they want a workplace that helps to foster egalitarianism and gives them the ability to learn.