Despite recent challenges property shares have faced, some of Australia's largest real estate companies may be on the verge of a recovery if one investment firm is correct.
This could have implications for property stocks such as Scentre Group (ASX: SCG), Dexus (ASX: DXS), and Goodman Group (ASX: GMG).
As real estate investment trusts (REITs), these companies have exposure to the broad ASX real estate sector. But could these property shares be positioned for a comeback? Let's see.
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Brookfield's optimism on property shares
Global investment giant Brookfield Asset Management believes the worst may be over for the property market.
At the company's investor day, Brookfield said it saw a "robust recovery" on the horizon as inflation eases and interest rates stabilise, according to Bloomberg.
This sentiment is bolstered by the next stage in the credit cycle, earmarked by global central banks easing their monetary policies.
Meanwhile, appetite for debt financing to fund property transactions was also back at full speed, the firm said.
Brookfield notes that distressed loans and non-performing assets could present buying opportunities. Office markets may see a particularly sharp recovery as supply shrinks and demand stabilises.
How does this impact property stocks?
Property shares like Goodman Group have already shown strong results. While Goodman shares have been volatile in the past month, the company's FY24 numbers were strong.
Goodman reported a 15% increase in operating profit, driven by its substantial development pipeline.
With $13 billion in projects underway – including a significant focus on high-growth data centres – Goodman is firmly in the digital infrastructure space.
Citi analysts are bullish on the property share, setting a price target of $40, which implies a potential upside of 18% at the time of writing.
Meanwhile, Dexus reported a $1.58 billion net loss for FY24.
This was largely due to a $1.9 billion write-down in its office property portfolio, which has seen valuations plummet.
Despite this, the property share is altering its distribution policy.
Starting in FY25, the company plans to distribute 80–100% of its adjusted funds from operations (AFFO). The rationale? Provide greater flexibility for new investments.
This strategy shift could help Dexus weather the downturn in the office market while capitalising on other growth opportunities. Given Brookfield's comments, this is noteworthy.
Scentre Group, on the other hand, owns and operates numerous Westfield shopping centres across Australia.
As such, the company is a key player in retail property, benefiting from strong consumer foot traffic and high occupancy rates in its centres.
While retail is not immune to economic cycles, Scentre's diversified tenant base and strategic locations could see it benefit from any growth in commercial real estate valuations, as Brookfield suggests.
All-in-all, should Brookfield's projections prove accurate, this could be a positive for ASX property shares.
Foolish takeaway
The broad real estate sector – and potentially, property shares – could be well positioned for growth, according to Brookfield Asset Management.
With a changing macroeconomic background, these companies could benefit.
