Public real estate positioned for potential upside

Following Covid and the historic central bank rate hiking cycle in 2022, investors reduced their REIT exposure, redirecting capital toward areas like technology that delivered clearer momentum. The result is that listed real estate has now become one of the most under owned sectors within many portfolios and long-only funds.

That positioning may be out of step with what is happening underneath the surface.

Samuel Sahn, managing partner and portfolio manager at Hazelview Investments, says the current environment is primed to see REITs regain their outperformance. Market commentary often treats REITs as a single trade, shaped primarily by interest rates and macro sentiment. In practice, outcomes vary widely across regions and sub-sectors which underscores the importance of active management within the space.  Performance is influenced not only by macro factors or demographics but by the fundamentals within each market segment.

“Markets do not move in unison,” Sahn says. Yet, public real estate continues to be framed in broad, uniform terms. The simplification makes the narrative easier to follow but it obscures the true fundamental setup and where the best opportunities are within the market.

Valuations and fundamentals are out of sync

Global REITs are entering 2026 trading at some of the most attractive levels relative to global equities in decades. In terms of absolute valuations, global REITs are estimated to sit at roughly a 17 percent discount to intrinsic value (defined as a blend of NAV and cash flow), which implies a potential price upside of over 20 percent. At the same time, trailing 10-year returns for global REITs are at or near cyclical lows, historically representing a potentially attractive entry point for investors.

“That combination of very attractive valuations and strong fundamentals is what gives us confidence right now,” Sahn says.

For much of the past few years, investors have focused on the interest rate narrative while less attention has been paid to one of the most important fundamental factors for real estate: supply. In this cycle, that key factor has become particularly compelling.

Higher borrowing costs, construction expenses and rising labour wages have impacted supply growth across multiple regions. Global new supply as a percentage of stock is forecasted to trend lower through 2028 for most major property types including office, retail, residential and industrial, potentially reaching all-time lows. In markets where demand is steady and new projects are limited; pricing power and higher earnings tend to follow.

Resilient demand where supply is scarce

Senior housing illustrates the shift.

Canada and the United States continue to see structurally strong demand as baby boomers age into higher levels of care. At the same time, new development remains muted as financing and construction costs are elevated. It is estimated that through the first half of 2025, fewer than 5,000 units or 0.25% of existing inventory broke ground in Canada.

“To build new senior housing facilities, it’s more expensive than past cycles and you need higher rents to make the math work,” Sahn says.

Operators have also adapted post-pandemic, improving health protocols and operating efficiency.

“Senior housing will continue to have very strong demand driven by demographics with the aging of the baby boomer generation and there is not enough new supply coming online to meet it” Sahn says. This dynamic should translate to continued revenue and earnings growth for operators.

Where the disconnect is clearest

That imbalance between supply and demand is not confined to one segment. It appears across multiple regions and property types.

In Germany, residential demand remains robust amid chronic supply shortages and sustained population growth in urban hubs.

“With the resiliency of demand in Germany’s residential market and a lack of supply to fulfill that demand, landlords are able to raise rents at a 4%+ pace which is very attractive in a historical context” Sahn says. “That’s one I would highlight.”

Industrial properties may also be approaching an inflection point. As supply pipelines thin and occupancy stabilizes, vacancy rates are expected to trend lower across North America, Europe and Japan. Yet companies are still trading at significant discounts to intrinsic value while fundamentals are improving.

Data centres offer another example. Despite structural demand tied to artificial intelligence and digital infrastructure, the sector was among the weaker performers last year. However, data centre REITs have had a much more positive start to 2026 as U.S. hyperscalers like Meta and Google announced larger than anticipated AI infrastructure spending.

“Fundamentally, the picture for data centres is very positive and AI is driving everything,” Sahn says.

Although surging AI growth has directly benefited data centre REITs, a new tailwind for all REITs has also emerged in early 2026, stemming from the “AI Immunity” narrative. As fears of AI disrupting software businesses and other service companies has resulted in multiple compression in those industries, investors have begun rotating into sectors that are asset-heavy and more insulated from technological threats like real estate. This dynamic has already resulted in better fund flows and performance for REITs at the start of the year.

Periods where pricing and operating fundamentals diverge rarely persist indefinitely. For advisors who stepped back during the rate shocks in 2022, global REITs are making a compelling case for a second look in 2026.

This article has been produced in partnership with Hazelview.