There are ways to invest in the property market beyond traditional real estate without incurring a significant amount of debt. One approach is to invest in ASX real estate investment trusts (REITs), which can provide exposure to various areas, including retail, office, logistics and distribution, manufacturing, storage units, childcare centres, healthcare and more.
ASX REITs have recently experienced significant challenges due to higher interest rates. However, it appears that interest rates may now be at or near their peak.
Hence, a fund manager has shared their perspective on whether this is the right time to invest in REITs. Funds management business Janus Henderson has discussed where it sees structural growth and if this is a turning point.
Is it time to invest in REITs?
Janus Henderson notes the commercial real estate sector has been through difficulties over the last two years as central banks tried to tame inflation.
The fund manager suggests a stabilisation of interest rates, with potential interest rate cuts, "should be good news" for ASX REITs.
Janus Henderson suggests the REIT market may be entering "the early innings of a potentially significant recovery". If so, the cost of and access to capital, particularly debt financing, should "increasingly play a part in differentiating" between businesses and investors in this space.
Janus Henderson's Guy Barnard, co-head of global property equities, said:
We are hitting an inflection point in underlying commercial real estate markets, where you will see people rebuilding their allocations as it becomes clearer that underlying real estate markets have bottomed.
Where to buy
The fund manager points out that the real estate market is evolving rapidly due to the growth in e-commerce, which has created "significant headwinds" in retail, while a shift to working from home is "creating challenges" in the office sector.
Barnard said:
We are trying to tap into those areas of structural demand from tenants, rather than trying to ride an economic cycle. We see the growth of digitisation as a great tailwind for tech real estate, including areas like data centres and cell towers.
While the fund manager didn't name any particular stocks, I'll point out a few. REITs with exposure to warehouses, logistics and distribution include Centuria Industrial REIT (ASX: CIP), Goodman Group (ASX: GMG) and Dexus Industria REIT (ASX: DXI).
Goodman is also rapidly growing its investments in data centres. While Nextdc Ltd (ASX: NXT) is not an ASX REIT, it is a way to play that theme on the ASX of building and owning data centres and generating revenue from them.
Janus Henderson also sees opportunities in demographics where baby boomers enter retirement and require underlying senior housing accommodation. Healthco Healthcare and Wellness REIT (ASX: HCW) can provide some of that exposure, though it has a diversified portfolio. Meanwhile, Ingenia Communities Group (ASX: INA) is a business that owns retirement communities.
