TOP 3 REITS TO WATCH FOR IN 2024
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With the recent devastation of the pandemic, inflation running rapidly, and interest rates sitting at a 23-year high, investors are doing their best to predict what the REIT market will look like in the near future. This list of high-performing REITs takes all of this into consideration, along with recent trends sprouting from these economic events, to predict an optimistic future to close out 2024 and head into 2025.
UMH Properties - UMH - Property Type: Residential
UMH Properties is in the perfect position to take advantage of current market conditions. The recent affordable housing shortage has created a huge issue in the United States. The median home sales price in 2024 quarter two was $412,300, roughly a 28% increase from the second quarter of 2020. To put this historically high jump in home sales price into perspective, from 1980 to 2020, the median home sale price rose by 416%, while the median price from 1980 to 2024 rose by a staggering 544%. This drastic increase in housing prices has created a huge demand for low-income housing.
As the leading owner and operator of manufactured home communities, UMH Properties is set to fill this void in the United States market. When comparing the cost of constructing a manufactured home over an on-site-built home, you will find that manufactured homes are built at a significant discount. In 2023, the average cost to build a manufactured single-family home was only $81.7 per square foot, while site-built houses were priced at $165.94 per square foot. This reduction in production costs allows manufactured homes to sell at a far lower price, filling the need for low-income housing. In fact, in the first quarter of 2024, UMH's new home sales averaged only $162,000.
In addition, the Fed's most recent meeting on June 11th and 12th of 2024 reveals that the federal funds rate is expected to fall to 5%-5.25% by the end of 2024 and 4%-4.25% by 2025. This prediction will have a direct impact on the mortgage rates, making it more affordable to purchase a home. This expected reduction will likely prove beneficial for UMH Properties as many Americans have patiently awaited this reduction to purchase their home at an affordable price. This built-up demand will likely pour over in 2025, putting UMH Properties in the perfect position. For now, with rates remaining high, rental properties are still a major aspect of UMH's income, as they hold 10,000 rentable units.
Along with these ideal upcoming market conditions, UMH Properties has seen its total market cap increase by 446% since 2012, showing steady growth and stability. The average dividend per share has seen a similar increase from 2020 to 2024, now at $0.85.
These market conditions, along with consistent performance, should solidify UMH Properties as one of the highest-performing REITs in the coming months and years.
Digital Realty - DLR - Property Type: Data Centers
Digital Realty, one of the largest data center REITs in the United States, boasts a market cap of $47.95 billion. It serves several S&P 500 companies, including Amazon, NVIDIA, Microsoft Azure, Google Cloud, and Cisco. This strong list of clients has further solidified the REIT's status and resulted in 148 new clients in just the second quarter of 2024 alone. As it stands today, Digital Realty serves more than 5,000 clients and operates over 300 data centers all across the globe. The recent dominant performance, coupled with the growing market for data centers and the companies they serve, creates an exceptional opportunity for sustained long-term growth.
It's vital to begin by identifying the accelerated growth in the demand for data centers in the last few years and the projections for the future.
Sources: DC Byte, Gartner, DatacenterHawk
Demand for data centers in 2023 stood at 34,000 megawatts, a 94% increase from 2019. Projections moving forward predict demand could reach 83,600 Megawatts by 2028, an even larger annual growth rate than before. This prospering market, bundled with a decrease in vacancy rates amongst global data centers over the past few years , provides reasoning for an optimistic outlook for all data center REITs.
Digital Realty's partnership with some of the largest cybersecurity and AI companies in the world provides an opportunity to take advantage of their growing market and need for large multi-gigawatt data centers.
The exponential growth of the global AI and cybersecurity markets is likely one of the leading causes of the increase in demand. These levels of growth will make it difficult for the supply of data centers to keep pace, further reducing the vacancy rates and increasing rental rates and property sales. Anticipating this lack of supply, Digital Realty currently has 436 megawatts of data centers under construction, primarily in Northern Virginia. The prioritization of building new data centers will allow Digital Realty to keep pace with the demand of existing partners that require vast amounts of megawatts and supply for future large client acquisitions.
Macerich - MAC - Property Type: Retail
Macerich is the leading owner, operator, and developer of high-level retail-producing properties, with locations in high-density areas, such as California, the Pacific Northwest, Phoenix, Scottsdale, and the metro New York and DC area. Macerich has slowly transformed its portfolio into one almost exclusively made up of A-level malls. This strategic transition has proved very beneficial due to the lasting effects of the 2020 pandemic. Rick-and-mortar retail sustained a huge blow to both vacancy rates and foot traffic during the pandemic due to the increase in E-commerce purchases. Since then, we've seen a noticeable sway back to more retail purchasing, but not all retail locations have been fortunate enough to recover back to the same pre-pandemic levels.
Occupancy rates for class A malls during covid reached a low of 91.6% but soon recovered back to the roughly 95% present before covid. Unfortunately for non class A malls, their occupancy rates did not experience a return to their pre-pandemic levels.
Despite the disparity between the two mall types, overall foot traffic has seemingly increased as we further remove ourselves from 2020. It is likely that the class A malls are the drivers for this increase in foot traffic, as lower class malls continue to struggle with high vacancy rates.
While investing in rick-and-mortar retail when E-commerce purchases remain high, I think it's important to acknowledge the data for class-A malls and how it reveals the strong resilience in the market.
