Investing.com — In its report titled ‘2025 Global Outlook’, RBC Capital Markets said it expects divergent paths for Canadian (CDN) and US REITs in 2025, supported by valuation dynamics, monetary policy shifts and sector-specific fundamentals.
Canadian REITs underperformed their U.S. counterparts in 2024, with the index gaining just 1% this year, compared to the index’s 13% gain. However, RBC foresees a stronger setup for Canadian REITs in 2025, driven by attractive valuations and the expected easing of monetary policy by the Bank of Canada (BoC).
“With most subsectors still positioned to deliver decent earnings growth, valuations looking increasingly attractive and greater expected monetary policy easing from the BoC, we see support for stronger CDN REIT returns in 2025 ,” RBC analysts led by Pammi Bir said in the note. .
U.S. REITs, which face high valuations and continued headwinds from rising bond yields, are expected to deliver flat to slightly positive total returns next year, potentially lagging the broader U.S. stock market.
The sector-specific outlook underlines the robust outlook for Canadian senior housing, supported by increasing demand and moderate new supply.
RBC expects an average of 11% net operating income (NOI) growth for retirement homes by 2025, with net operating income growth for long-term care facilities expected to be between 1% and 2%.”
Meanwhile, Canadian industrial REITs are expected to benefit from substantial mark-to-market opportunities, although near-term pressures include rising availability rates and moderating demand.
In the US, healthcare REITs stand out for their “healthy operating environment and solid long-term prospects,” especially among REITs with significant SHOP portfolios.
At the same time, net lease REITs are poised for growth in acquisition volume as the cost of capital improves, but performance will remain dependent on yield curve movements.
Other subsectors, such as US manufacturing and warehousing, are likely to face continued pressure until mid-2025 due to demand uncertainties.
RBC’s global REIT basket balances sector fundamentals, growth prospects and valuation.
Notable picks include Dream Industrial REIT (TSX:) (DIR), Promenade REIT (TSX:) (BEI), and Chartwell Retirement Residences (TSX:) (CSH) in Canada, in addition to US-based Gaming and leisure properties (NASDAQ:) and Healthpeak Properties (NYSE:).
American Healthcare REIT Inc (NYSE:) (AHR) is highlighted as one of the picks with “the best growth prospects, not just in the sector, but in our view, in the sector,” according to analysts.
The report also warns of challenges in Canadian office markets, where leasing rates remain low, and in the US housing market, which faces stock selection issues despite favorable fundamentals.
