UBS Research

Historical gloval real estate sectore earnings growth vs. GDP growth*

Source: IBES, Datastream, UBS, DXAM

*This graph has not been prepared by DXAM and the information in it is predictive in nature. Global EPS & GDP growth (YoY) is average of US, UK, EU, AU, JP, HK, and Singapore. Any forward looking statements are based on estimates and assumptions related to future business, economic, market, political, social and other conditions that are inherently subject to significant uncertainties, risks and contingencies, and the assumptions may change at any time without notice. The statements may therefore be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Actual results ultimately achieved may differ materially from those predicted or implied by any forward looking statements and are not guaranteed to occur. The forward looking statements only speak as at the date of this material, and except as required by law, DXAM disclaims any duty to update them to reflect new developments. Past performance is not a reliable indicator of future performance.

When real estate earnings growth outpaces the broader economy by such a wide margin, it indicates that landlords have pricing power. Supply constraints in key sectors are allowing rents to rise even as the wider economy cools.

This is reflected in earnings growth which, after a few testing years, has reached an inflection point, a fact that the "smart money" has already noticed but the broader market has not.

In the first half of 2025, global listed real estate transaction volumes hit US$358 billion, up from US$295 billion in the previous corresponding period. Public markets may be pessimistic but those with capital—largely pension funds and private equity—are stepping in to close the gap, buying entire companies at a discount. This is another value-affirming signal.

The macroeconomic backdrop is also favourable. Investors often worry about bond yields acting as a gravitational pull on real estate prices but the “spread” between GREIT EPS yields and local 10-year bond yields remains attractive. In almost every major market the earnings yield on REITs sits comfortably above the risk-free rate.

But we must return to basic financial ratios for the most striking comparison between global REITs and general equities.

Historically, listed real estate and general equities have moved more or less in tandem. The pandemic took a hammer to that relationship. No matter the metric used, GREITs look attractive when compared to general equities.

On a price-to-cash-flow basis, GREITs are trading at levels significantly below their 10-year average while general equities trade at elevated multiples. The same applies to price-to-book value and, as mentioned above, price-to-earnings ratios (PER).

On most measures, GREITs are trading at their widest discount to equities in a decade, and sometimes even longer.

UBS Research, DXAM

For active managers like us, this is the sweet spot. We are being offered assets with superior earnings growth forecasts at valuation multiples that look like they’re distressed when they’re anything but.

So, what does this opportunity look like on the ground? Let me offer two examples from our portfolio: Plymouth REIT in the US and Urban Logistics REIT in the UK.

Plymouth REIT (NYSE: PLYM) is a classic example of an unloved stock where the intrinsic value was hiding in plain sight. Plymouth specialises in "small bay" industrial properties— smaller warehouses and flex spaces that are the lifeblood of the US manufacturing supply chain.

The market had priced Plymouth at an implied capitalisation rate of 9.3%. In plain English, the market was saying these buildings were risky or low quality. In contrast, we found a portfolio of 204 industrial buildings concentrated in key manufacturing regions, generating steady cash flow.

Our thesis was validated when a private Equity (PE) firm launched an unsolicited, non-binding bid for the company at an implied a cap rate of 7.5%—a substantial repricing from the market’s 9.3% assessment. This outcome resulted in a year-to-date total return in excess of 30% and was a textbook example of the private market stepping in to close the discount to fair value, benefiting our investors.

In the UK, Urban Logistics REIT (LSE: SHED) was a similar example. This REIT comprised a curated portfolio of "last mile" warehouses essential for getting goods to customers' doors in crowded urban cities.

Despite high-quality fundamentals and a portfolio ripe for organic growth through rent increases, the stock has been trading at a significant discount. However, investors agitated for the company to close the discount to fair value and ultimately succeeded. The rental growth was real, the assets essential but the market’s assessment of value anomalous, resulting in a much larger listed peer taking it over for a handsome premium.

These are not isolated examples of market inefficiency. Global REITs currently offer a "free lunch" of sorts, offering higher yields and higher growth at lower multiples than the broader market.

But capturing opportunities like this requires more than simply buying an index fund. The difference in performance between the best and worst assets is widening. The environment calls for an active manager to identify the specific sub-sectors where supply is tight and the specific companies where the discount to private market value is too large to ignore.

That’s what the Dexus GREIT Fund is all about. For investors seeking protection in an uncertain world, the combination of a reliable, growing yield and the potential for significant capital appreciation as these valuation gaps close is a compelling proposition. International diversification is a bonus; the real prize is the value on offer.