RE:Canadian REIT sectorThere are so many variables affecting real estate prices in the short term, it is really a mug's game. But if we look out 10 years, things are more predictable ... and I forecast heady times for Canadian REITs.
First, let's be clear that REITs should be valued based on their asset values, plain and simple. The IFRS asset values already reflect the cash flow projections, cap rate expectations, and risks that the market is discounting (of course we can tweak these a little if we think valuations are stale in a dynamic market, but in general the IFRS values seem to hold up when one looks at REIT dispositions over the past year). Anyway, over the longer term, these asset values will tend to rise at about the same rate as inflation. So it makes little sense to be "worried" about higher interest rates, when these high rates will persist only as long as inflation - which REIT investors should cheer - remains above the 2% or 3% target.
In fact, most REITs are having their cake and eating it too! Their underlying assets are benefiting from inflation, but their interest expenses are locked in at 3% or less for up to five years. A pretty sweet cake that keeps on giving.