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Quarter-End Insights

Real Estate: Rising Rates Won’t Derail Strong Fundamentals

REITs have focused on strengthening their portfolios, deleveraging, and capital recycling in the face of higher bond yields and new construction.

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  • Morningstar's real estate coverage appears fairly valued at current levels.
  • We view themes in commercial real estate as generally defensive in nature, with lingering concerns about increasing bond yields associated with future rate hikes. 
  • Despite these concerns, we continue to focus on underlying performance, which has remained healthy overall, as REITs have been focused on repositioning and strengthening their portfolios, deleveraging, and capital recycling. 
  • Construction of new property continues as firms look for higher returns; however, this raises questions about oversupply as economic uncertainty remains. 
  • At current price levels, we see attractive investment opportunities scattered across various asset classes within our REIT coverage. Vornado is trading at a noteworthy discount to our fair value estimate.

U.S. Real Estate Outlook
Contributed by Brad Schwer

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Brad Schwer does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.