With interest rates likely to decline further, ASX investors may be looking at ASX REITs for investment opportunities
Real estate investment trusts (REITs) are listed on the ASX, making them accessible to all investors.
REITs own and operate property assets that produce income. Income is passed through to investors.
There is diversity within the REIT sector, based on the type of property held. For example, commercial real estate, industrials, healthcare, and retail.
In an 18 July research report, Listed Property Sector, Macquarie Group Ltd (ASX: MQG) shared its current views on the REIT market and named its top two picks.
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A preference for Office REITs
In that research note, Macquarie expressed its preference for office REITs.
The broker noted that it has held this view since the start of the year, and believes this space of the market currently offers the best value for investors:
Office data is supportive of a recovery. At the start of CY25 we advocated for a rotation into office based upon an anticipated gradual recovery in income fundamentals and stocks trading at deep discounts to book value. 2Q25 office data was positive across most headline data points, and positive forecast revisions further support an improving environment.
Macquarie noted that Sydney remains its preferred market and 'Sydney core' its preferred precinct. Meanwhile, Melbourne is its least preferred market, and Docklands is its least preferred precinct.
2 Office REIT stocks to buy in July
The broker also named its two most preferred ASX REITs in the office space.
Dexus (ASX: DXS) and Mirvac Group (ASX: MGR) were named due to their office exposure in Macquarie's preferred precincts.
According to Macquarie research, Dexus currently has 37% of its assets in Sydney Core, while Mirvac has 13% listed in this geography.
Due to this positioning, the broker expects Dexus and Mirvac to maintain the lowest weighted average capitalisation rates in its ASX REIT coverage universe.
Capitalisation rate, commonly known as 'cap rate', is a common valuation metric in property valuation. It estimates the rate of return on an investment property by dividing net operating income by its current market value. The lower the cap rate, the higher the valuation.
Macquarie currently has an outperform rating and price target of $7.50 on Dexus.
Meanwhile, the broker has placed an outperform rating and price target of $2.38 on Mirvac.
Both ASX REITs also offer attractive dividend yields, known as distributions in the case of REITs. This may increase the appeal of these two companies in the eyes of passive income-oriented investors.
Dexus' yield is currently 5.3%, while Mirvac's is 4.05%.
However, it should be noted that, like all ASX REITS, these distributions are unfranked.
