Following a string of economic indicators showing rising growth, falling unemployment, increased non-farm payrolls and more mergers and acquisitions deals in the US, have all supported the performance of REITs in recent months.
Developers in the United Kingdom, meanwhile, have also reported positive earnings overall, though their investment returns have been relatively lower. Those with large exposure in central London regions will continue to show good performance, benefiting from rental growth.
However, over in continental Europe, prospects for REITSs are not looking as good, due to a generally weak macro outlook and deflationary environment. Although authorities are expected to unveil more monetary easing, share prices of real estate firms across Europe haven't shown any significant gains relative to the US.
In Asia, stock markets have been dragged down by concerns over the broader economy. Japan has entered technical recession, Hong Kong has seen a slowdown in retail sales growth and Singapore is suffering from weakening industrial production. Consequently, real estate stocks have fallen in line with the overall equity markets in the region.
Going forward, economists believe global market sentiment will continue to be driven by the expected trend in US interest rates, with the Fed continuing to raise rates following the initial hike last December.
Due to the strong US economy, it is believed that boosting exposure to American real estate will pay off. US REITs are now trading at a 10% discount to their average net asset value while the earnings are forecast to increase 8%. Analysts also have a positive outlook for US residential property, Grade-A office space and commercial buildings in coastal cities, expecting strong earnings growth driven by US economic recovery.
Rising interest rates are good news for the real estate sector, particularly in new construction or development. This is because prices for raw materials remain stable in the face of rising interest rates whereas the finished product becomes more expensive to the consumer, making companies that profit from homebuilding and construction attractive plays for savvy investors.