“We see U.S. commercial real estate delivering attractive total returns over the next few years in a low-return world. We expect capital appreciation to slow but see operating income growth due to the reflationary backdrop and the potential for property managers to add value by upgrading buildings. Average yields of 3.5% are competitive with 3.4% for U.S. investment grade and an S&P 500 dividend yield of 2%. Demand is strong: Nearly half of institutions in our most recent Global Institutional Rebalancing Survey intended to raise allocations to real estate this year,” according to a BlackRock note posted by Amey Stone of Barron’s.
Higher interest rates are seen as punitive to REITs’ cash flow, which can hinder the company’s ability to boost dividends, the primary allure of the asset for many investors.
“We favor industrial and office properties that should benefit from reflation. We are neutral on apartments due to elevated supply and avoid retail properties due to e-commerce competition. We like selected publicly traded U.S. real estate investment trusts and commercial mortgage-backed securities,” said BlackRock in the note seen on Barron’s.
For more information on real estate investment trusts, visit our REITs category.