Numerous Property Types’ Prices Are Rising

Many Green Street analysts’ mid-year reviews reveal rising prices across most property types, according to Michael Knott, managing director and head of U.S. The REIT study began with

The office, storage, and life science sectors did experience declines in March 2023. However, costs increased for casinos, ground leases, healthcare, strip malls, hotels, industrial buildings, and cold storage. There were rising NOIs and stable cap rates in such industries. Although listed REITs were reasonably priced when compared to bonds and inexpensive when compared to the S&P 500 (albeit given the index’s structure, keep in mind that this comparison is to a mix that is highly overweighted with technology stocks), private-market real estate was nearly 10% above its assessed fair value.

According to Vince Tibone, managing director for malls and industrial, the risk-adjusted discounted cash flow (DCF) projected return was, after various modifications, an average of 7.3%, ranging from data center at 6.9% to mall at 7.7%.

According to strip mall expert Paulina Rojas-Schmidt, the property type has recovered from the pandemic stronger, having been “revitalized” by high tenant demand and limited new supply, which has strengthened landlord bargaining power.

According to office analyst Dylan Burzinski, the private market DCF is 7.1%, ranging from 6.1% for offices to 8.4% for ground leases.

Globally, demand for data centers is surpassing supply, and this trend is likely to continue as AI deployments demand more processing power. According to David Guarino, a senior analyst for data centers and towers, the imbalance in demand will lead to new developments, with supply increasing over time.

Senior Associate for Healthcare Michael Stroyeck remarked that through the second part of the 2020s, there will be a strong demand for senior housing due to the demographic expansion of people 80 and older. Operating basics will also get better when COVID loses favor in people’s perceptions.

In the Sun Belt and coastal regions, permits are still increasing and reaching new highs, according to Alan Peterson’s analysis for residential. Low supply growth in coastal markets will guarantee revenue growth over the following 18 months. The aging population and limited purchasing power of renters will be advantageous for single-family rentals. For the next 12 to 24 months, there will be an imbalance between supply and demand, and landlords will be in a stronger negotiating position.

But not everything is positive. The sector “continues to be on shaky ground,” according to office analyst Dylan Burzinski, which isn’t surprising given the state of the economy and how businesses are navigating potential future use cases.

According to Spenser Allaway, senior analyst for net lease and self-storage, changes in real estate prices since the peak in March 2022 have been almost entirely negative, with ground lease losing 29% of its value, offices losing 27%, apartments losing 21%, malls losing 18%, and net lease losing 16% as the biggest losers. Prices are down 15% on average. Prices, however, have not always been genuinely indicative of the market due to the decline in transaction volumes.