It may seem counterintuitive, but buying into real estate shares near the top of the interest rate cycle can be a way to position yourself for strong capital gains.
Broker Canaccord Genuity has this week released a research report on the listed real estate sector and notes that it has significantly underperformed the broader market this year.
Not surprisingly, they argue this is due to the four interest rate increases to date this year, with another likely in November.
But they also point out that the market is pricing in the next interest rate increase as the final one in the cycle, before rates then begin to fall.
They added:
While policy easing appears unlikely until at best late 2027, we believe now is a good time to explore countercyclical opportunities, given markets are inherently forward-looking and typically move well ahead of actual changes in monetary policy.
CG said real estate has a strong inverse relationship with interest rates, and at the moment, the sector is closest to "trough valuations" among rate-sensitive sectors.
They said the sector was trading at levels similar to prior cycle lows and materially below its five-year average.
CG added:
In addition, interest rates are the primary headwind facing Real Estate, making it the 'cleanest' rates play. REIT earnings are largely underpinned by contracted rents, making them less directly exposed to swings in consumer spending, even in consumer-facing subsectors such as retail property.
CG has selected four companies as their preferred real estate exposures.
These are:
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Goodman Group Ltd (ASX: GMG)
CG said Goodman Group has attractive fundamentals, and its growing data centre portfolio exposes it to the AI thematic.
The company is currently trading at a 23% discount to its five-year average, and "the valuation appears attractive for this level of growth, with potential near-term lease announcements providing scope for the stock to re-rate''.
Scentre Group Ltd (ASX: SCG)
The broker said Scentre is a high-quality defensive stock, with its portfolio of Westfield shopping centres, which boast near-full occupancy.
While its retail tenants are sensitive to rate increases, Scentre's income is supported by contracted leases with inflation-linked reviews.
Scentre is trading at a 22% discount to its five-year average, CG said.
Charter Hall Group Ltd (ASX: CHC)
CG said Charter Hall was the strongest beneficiary of an interest rate stabilisation scenario and was looking cheap, with its price-to-earnings ratio having dropped 30% from its 2026 highs.
The broker said they believed this drop was due to interest rates rather than stock-specific concerns.
They added:
CHC offers compelling value for a high-quality franchise with a double-digit EPS growth outlook, particularly for investors who believe rates are near their peak.
GPT Group Ltd (ASX: GPT)
CG said GPT, "offers broad-based Australian real estate exposure across the retail sector (40% of value), office (37%) and logistics (24%), alongside a growing funds management business''.
The company's high-quality retail centres, with near-full occupancy, anchored earnings, and the company had historically benefited from falling rates.
The broker said GPT was trading at 32% below its five-year average on a price-to-earnings basis.
