REITs are benefiting from several tailwinds to end 2024 and are poised for a strong year ahead

CHICAGO– Despite recent interest rate-driven volatility, public REIT returns have posted a strong 2024 YTD, up over 16% with healthcare, data center and office REITs emerging as top performers thus far.

JLL’s latest M&A and Strategic Transactions Monitor reveals the top themes in both public and private markets through year-end 2024 and forecasts for 2025.

• Strong 2024 returns have led to several REIT sectors trading at a premium to NAV, implying a strong cost of capital signal.  
• As a result of the favorable valuations, REITs are shoring up capital to go on offense, and acquisition forecasts point to a busy 2025.
• In addition, valuation declines have appeared to bottom for both public and private real estate. REIT nominal cap rate expansion has plateaued, providing further evidence of attractive entry point for the capital on the sidelines.
• Redemption queues for ODCE funds, who have been cautious throughout the period of heightened interest rate environment, have started to lessen in the most recent quarter, after peaking at 19% of NAV.
• Valuation spreads between top and bottom performing REITs has grown, presenting pricing arbitrage opportunities and potentially catalyzing increased M&A activity in 2025.
• With interest rates generally trending downward, debt markets are poised to remain open and active for 2025.
• Office REITs are the among top performing sectors in 2024 and have benefited from consistently strong fundamentals despite a barrage of negative sector headlines.

“Coming out of the GFC we witnessed a V-shape recovery. That same pattern is emerging in both public and private capital markets today,” said Steve Hentschel, Senior Managing Director and global co-head of JLL’s M&A and Corporate Advisory practice. “The capital markets signals point to attractive entry points, with growth tailwinds and increased transaction activity to persist, supporting valuations going forward.”

In relation to private capital markets, similar themes are occurring with asset valuations largely stabilizing, yields beginning to compress and institutional capital becoming increasingly active. All of this is occurring in lockstep with construction starts slowing putting increased pressure on future supply.

JLL’s report also takes a closer look at the living sector, which is undergoing a recategorization to include more than traditional multi-housing. Today’s living sector is the largest investable real estate property sector in the U.S., accounting for approximately 40% of transaction volume in the last three years and has broadened to include subsectors, such as affordable, student, seniors, manufactured housing communities and single-family rental. In addition, there is low correlation among the living sector enabling investors to diversify their exposure and mitigate risk while being invested across the spectrum, boosting the attractiveness of the sector.

“As we head into 2025, we should see increased activity across the commercial real estate space, as we are observing with REIT market trends,” said Sher Hafeez, Senior Managing Director of JLL’s M&A and Corporate Advisory group. “There are a lot of breadcrumbs on display for a very active 2025 across both public and private real estate capital markets, and we are excited about what’s ahead for our sector.”

Barring any unforeseen black swan events, 2025 should continue to move up the v-curve towards normalization.

JLL’s Capital Markets group is a full-service global provider of capital solutions for real estate investors and occupiers. The group’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment sales and advisory, debt advisory, equity advisory or a recapitalization. The group has more than 3,000 Capital Markets specialists worldwide with offices in nearly 50 countries.