Should ASX REITs be on your buy list right now?

Analysts offer their views.

| More on:
Group of successful real estate agents standing in building and looking at tablet.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX real estate investment trusts (REITs) are looking more appealing as United States interest rates come down, office values stabilise, and retail assets hold up despite weak consumer sentiment, analysts say.

The S&P/ASX 200 A-REIT Index (ASX: XPJ) is having a good day on Thursday, up 1.43%. Real estate is the second-best performing sector today behind the S&P/ASX 200 Materials Index (ASX: XMJ), up 2.38%.

The benchmark S&P/ASX 200 Index (ASX: XJO) is up 0.62% to 8,192.9 points at the time of writing.

In earlier trading, the benchmark index hit a new record high of 8,186.9 points amid a 50-basis-point cut to United States interest rates and the release of new unemployment figures in Australia. This afternoon, the index notched another new record high of 8,200.3.

Over the past 12 months, ASX REITs have risen by 36.8%, while the ASX 200 has lifted by 14.3%.

The ASX property sector has had a rough few years amid higher interest rates and many changes.

The pandemic led to the downgrading of office real estate assets in the new work-from-home era, but there are signs of recovery now.

Data centres emerged as hot property amid the growing digital economy — turbocharged by COVID lockdown periods — and the rising use of artificial intelligence (AI) today.

Retail assets have faced headwinds, including reduced demand for retail space as more customers began shopping online and lower consumer spending amid higher inflation.

However, several analysts say change is underway for ASX REITs, and now might be the time to buy them.

'Clear inflection point' for ASX REITs, say analysts

In The Australian today, CLSA analysts James Druce and Adam Calvetti described a "clear inflection point" for ASX REITs following last month's earnings season.

This is based on expectations that US and Australian interest rates had peaked, as well as trough earnings for several REITs, including Dexus (ASX: DXS), Vicinity Centres (ASX: VCX) and Stockland Corporation Ltd (ASX: SGP).

They also said there were indications the transaction market was opening up as asset values stabilised.

They've put an overweight rating on the ASX REITs sector, commenting:

We expect the residential sector to pick up again on rate cuts, after constant pressure on volumes and margins, from high construction costs, subcontractor delays and elevated interest costs.

Generally, we are more comfortable asset values have troughed. We see more devaluations in office, between 3 per cent to 5 per cent based on transactions in the market.

Barrenjoey head of REITs research, Ben Brayshaw, is also optimistic about ASX REITs from here.

He notes that bank funding costs have eased, which is being passed on to REITs through lower margins.

He said while capitalisation rates, which are used to measure property values, have expanded 75 basis points since their peak, gearing ratios had stabilised for the first time in 18 months.

Brayshaw said:

This puts REITs in a more favourable light. Investors could be well served to increase their allocation to the sector, in our view.

He added:

Elevated levels of rate volatility and consensus earnings downgrades have largely kept investors on the sidelines over the last two years, not knowing when to catch a falling knife.

The cycle appears to have turned: average gearing levels stabilised this season, and credit conditions for REITs are starting to ease.

JPMorgan analyst Richard Jones said investors were showing new interest in ASX REITs.

Jones said:

We saw increased sector interest beyond the well-held Goodman Group (ASX: GMG) as investors positioned for global central bank easing and turned more defensive amidst negative earnings revisions across much of the ASX 200.

Pros and cons of investing in ASX REITs

As recently reported, Clive Maguchu from State Street Global Advisors says there are pros and cons to ASX REITs.

The pros include exposure to property without having to own physical real estate directly, as well as income generation, portfolio diversification, and liquidity.

State Street also considers ASX REITS an inflation hedge because real estate values have historically risen with inflation.

The cons include less potential capital growth, impacts from a property market and/or share market downturn, higher interest rates, and management risks.

Should you invest $1,000 in Dexus right now?

Before you buy Dexus shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Dexus wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bronwyn Allen has positions in Goodman Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group and JPMorgan Chase. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Opinions

Where I'd invest in ASX shares after the RBA interest rate cut

These stocks look really attractive to me. Here’s why…

Read more »

Miner looking at a tablet.
Opinions

3 reasons why the Fortescue share price could still be a buy

Let’s dig into why this mining giant could be a solid buy.

Read more »

A young woman wearing a red and white striped t-shirt puts her hand to her chin and looks sideways as she wonders whether to buy NAB shares
Opinions

The pros and cons of buying Wesfarmers shares in May

Is this retail giant an appealing opportunity?

Read more »

Smiling man sits in front of a graph on computer while using his mobile phone.
Opinions

2 ASX 200 shares that I think are still bargains after the market rally

These businesses look like attractive opportunities. Here’s why…

Read more »

A young woman looks at something on her laptop, wondering what will come next.
Opinions

Worried about another stock market sell-off?

Market declines don’t need to be too scary.

Read more »

An evening shot of a busy Times Square in New York.
Opinions

The pros and cons of buying US-focused ASX ETFs in the current environment

In a short amount of time, the US share market has erased the declines that it went through at the…

Read more »

I young woman takes a bite out of a burrito n the street outside a Mexican fast-food establishment.
Opinions

Time to cash in your gains? Brokers say sell on these 3 ASX 200 shares

Experts say these stocks are overvalued and it may be time to take some profits off the table.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Opinions

Here's what I'd do after the big ASX stock market rally

The US and China are working towards a trade deal.

Read more »