National Bank Financial analysts Matt Kornack and Tal Woolley favour “tightening” multi-family and industrial real estate markets to start to 2022.
“By asset class, we see the highest average total returns in our Industrial and Multi-family coverages (22 per cent total returns each),” they said in a research report released Monday. “This is followed by Seniors Housing/Healthcare (another quasi-residential asset class) and Diversified at 20 per cent. Basically, our expectations are stronger for these names due to the favourable supply/demand pictures. We see average total returns of 14 per cent for our Office coverage and for Retail, which still have to resolve questions around growth/occupancy as COVID wears on. Our Special Situations coverage also offers some interesting opportunities in self-storage, single-family housing and manufactured housing (again, all quasiresidential asset classes).”
In the industrial sub-sector, the firm sees rent growth continuing to “surprise to the upside, particularly in gateway markets with limited availability and new developments with higher rents as the only competition. Of late, trading prices retreated on higher bond yields, but we expect the healthy organic growth to drive financial performance and investor interest in 2022.”
Though the analysts caution Omicron will cause “a little operational discomfort” in the multi-family area, they see a “stronger” spring market.
“Operating metrics here remained solid, even with immigration declining during COVID,” they said. “As occupancy normalizes, we anticipate pressure will build for rents. The omicron wave may blunt operating momentum generated through Q4, but we still expect strong spring leasing. If foreign jurisdictions, like the U.S., where both HOM and HR have exposure are any indication rents can accelerate quickly but this will be moderated domestically by rent control regimes.”
The analysts made these target adjustments:
- Boardwalk Real Estate Investment Trust (“outperform”) to $65.50 from $63.50. Average: $60.27.
- BSR Real Estate Investment Trust ( “outperform”) to US$21.50 from US$20. Average: US$20.15.
- Extendicare Inc. (“sector perform”) to $8 from $8.50. Average: $8.13.
- European Residential REIT ( “outperform”) to $5 from $5.75. Average: $5.50.
- Granite Real Estate Investment Trust ( “outperform”) to $115 from $110. Average: $109.40.
- Tricon Residential Inc. ( “outperform”) to $21 from $20. Average: $20.