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Quarter-End Insights

Good Value Can Be Found Among Hard-Hit Real Estate Subsectors

We expect malls, hotels, and healthcare subsectors to rebound.

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The Morningstar US Real Estate Index fell 8.7% over the trailing 12 months and is underperforming the broader U.S. equity market by 16.4%, as the sector has not shown the same recovery in the second quarter as the broader equity market. However, real estate performance has diverged significantly by subsector. The real estate sector is currently trading at a significant discount. Our coverage currently trades at a 19% discount to our estimate of intrinsic value compared with a 3% premium on average at the end of the fourth quarter. Currently, the real estate sector is 18% 5-star and 32% 4-star, with only 18% of the total sector trading in either a 1-star or 2-star range.

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