US real estate stocks are struggling this year after a rough 2022, as fears that banks will tighten lending standards pile pressure on a sector already hit by higher interest rates
“While the market has clearly priced in a lot of negativity for office REITs, rising delinquency rates and the upward trajectory of vacancy rates implies there could be more downside risk ahead,” wrote LPL Financial’s Adam Turnquist in a note earlier this week.
Valuation for a group of over 130 real estate stocks -- comparing stock prices to funds from operations, a common industry metric -- fell from 25.5 times earnings at the start of 2022 to 17 times by year end, according to R.W. Baird.at the Fed's monetary policy meeting next month, with rates then starting to fall after the summer. The Fed, on the other hand, has projected rates will remain around current levels for the rest of 2023.
Indeed, while vacancy rates have gone up in office space compared to before the coronavirus pandemic hit in 2020, they have fallen over that time in areas such as retail and industrial real estate, according to Glenmede.
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