At the recent UBS Global Real Estate Conference in London, a key investing lesson was subtly but forcefully reiterated: stocks can stay mispriced for longer than you might expect.

As I wrote after attending the same conference last year (see Global REITs: Leaning into the recovery phase - Part 1 and Part 2) “with interest rates falling or poised to do so, solid operating fundamentals and constrained supply, the last few months of 2024 were the perfect time to get set.”

Fortunately, that remains the case. For investors who haven’t yet taken advantage of global REIT mispricing, not much has changed, except that the reasons to act are now, if anything, more compelling.

While the case for lower rates has abated after multiple cuts, if the evidence presented at the conference was anything to go by, global REITs are a mispricing opportunity that should not be ignored.

Here are my top eight insights:

1. Confidence is high; prices still relatively low

The most striking feature of this year’s conference was the broadly positive sentiment, expressed in a new benchmark for industry engagement. With 387 participants, up 3% year-on-year, and 70 management teams from around the world, the tone was upbeat.

Whether justified or not, it is often share price rises that deliver ultimate confidence. This is not the case with GREITs which, according to the S&P 500 Global REIT Index, have largely trodden water over the past 12 months.

Instead, management teams expressed expectations of solid rental growth, driven by persistently low levels of new construction and constrained supply across major markets. Leading REITs consistently pointed to the supply-demand imbalance as a key driver of rental tension and income growth in the coming years.

It is these fundamental factors that will drive future share price returns, a reality recognised by managers who acknowledged the need to address persistent share price discounts through improved returns, balance sheet discipline and share buybacks.

2. Management teams are adapting to a higher-rate world

Whilst attendees expected interest rate falls at last year’s conference, this year there was little expectation that interest rates would return to ultra-low levels. Instead, REIT CEOs noted their focus on disciplined capital allocation in a higher rate world.

Many noted how they were refashioning their portfolios, recycling assets and undertaking developments very selectively and, as noted above, looking at measures to close share price discounts. In addition, refinancing, structured capital solutions and preferred equity are becoming more common as companies adjust to increased funding costs.

3. Mergers and acquisitions (M&A) is moving up the agenda

In the past two years, REIT managers at the conference noted their easier access to debt capital and equity to fund strategic acquisitions, although as I noted last year, “the jury remains out”.

Well, the jury is now filing in to give their verdict. Heightened M&A activity was a key talking point this year. More deals are being discussed, announced or actively considered across Europe, the UK, Australia and the US, including M&A and privatisations.

However, this is largely in smaller deal sizes (under £10m in the UK, for example) while large transactions (£100–200m+ assets) are less common. Nevertheless, heightened M&A activity is likely to accelerate the closing of valuation discounts and create opportunities for active managers to benefit from corporate activity and asset repricing.

This is certainly true for the Dexus GREIT Fund, which recently profited from corporate activity in two portfolio holdings—Plymouth REIT in the US and Urban Logistics REIT in the UK.

4. The office market is splitting

Last year, I made the point that, driven by limited supply, “the office sector was back from the dead”. This year, it is clear that the recovery is uneven.

Prime office markets exhibit a clean bill of health. In the City of London, for example, rents are up around 15% year-on-year while Paris CBD vacancy sits at just 0.7%. With tenants consolidating into premium locations and high-quality buildings, the divide between prime and secondary assets is intensifying. For investors, this bifurcation is a call to choose carefully.

5. Retail resilience is underestimated

During Covid, many speculated that the era of bricks and mortar retailing was set for a painful decline. This judgement was premature. Omnichannel strategies—where online retailing is woven into real world shopping experiences—are driving occupancy.

In JB Hi-Fi, Bunnings and Officeworks, Australia has plenty of examples. In the UK, retailers like M&S are leveraging click-and-collect and in-store returns to boost incremental purchases while pure-play online operators like ASOS and Ocado are struggling with margin compression.

Supported by high occupancy and strong investor demand, retail parks continue to outperform shopping centres. Omnichannel strategies such as click-and-collect are driving incremental spend while essential tenants provide income stability.

Active asset management is playing an increasingly important role, with tenant rotation, leisure integration and operational improvements delivering meaningful rental uplift. Retail is very much alive and demonstrating its resilience and ability to adapt.

6. Industrial fundamentals remain compelling

Covid had the opposite effect on logistics when compared to shopping centres, with those structural drivers still intact. In European Union markets, e-commerce penetration is expected to rise from around 10% today to 14% by the end of the decade. This will substantially increase the demand for logistics space, especially when one considers supply constraints and permitting hurdles.

Again though, market bifurcation is evident. The 12% vacancy rate in Budapest, for example, is a reminder of the dangers of outdated industrial properties compared to modern, high-clearance assets that command premium rents and enjoy strong tenant retention.

Under-renting remains evident in several markets, providing scope for reversion through active management, while sale-and-leaseback transactions continue to offer attractive entry points.

7. Data centres face constraints (and undeniable demand)

The discussions around data centres confirmed their strong technology tailwinds and significant delivery challenges. Power availability and grid constraints are emerging as key limiting factors across Europe, increasing execution risk but also reinforcing barriers to entry.

Demand, meanwhile, driven by hyperscalers like Alphabet, Meta and Amazon, and AI-driven workloads imply long-term growth. These conflicting dynamics have led to an approach that attempts to manage risk, including modular construction, power purchase agreements and private-grid solutions. Again, this evidence of the sector’s adaptability.

8. This environment favours active management

One clear message from the conference was that dispersion within listed real estate is increasing. Dispersion refers to the widening gap between winners and losers in the sector, driven by asset quality, balance sheet strength and execution capability.

This environment favours selective, actively managed strategies capable of exploiting mispricing, particularly in small to mid-cap REITs and situations involving corporate or asset-level changes.

As manager of the Dexus Global REIT Fund, we are seeing this advantage reflected in portfolio outcomes, reinforcing the value of an active approach at this point in the cycle.

In summary, the downward pressure on valuations and earnings from rising interest rates has eased while operational fundamentals are strengthening. Listed real estate continues to trade at a discount to unlisted markets, but greater certainty around capital costs is emerging.

For investors, this combination creates a compelling opportunity as valuation gaps close and income growth reasserts itself. It remains an attractive environment to generate stable, growing income with the potential for meaningful capital returns.