In this article, we discuss 10 best commercial real estate stocks to buy according to hedge funds. If you want to skip our detailed discussion on the real estate market outlook and skip to the top commercial real estate stocks, check out 5 Best Commercial Real Estate Stocks To Buy.
There is still significant uncertainty regarding the future usage of office buildings as companies and employees adapt to hybrid working models even after three years since the COVID-19 pandemic disrupted the world. According to PwC, while companies and their employees are determining their preferred work arrangements, some firms are choosing to retain their office spaces as a precautionary measure or due to lease obligations. However, an increasing number of companies are downsizing or opting not to renew expiring leases. Consequently, vacancy rates in the office sector continue to rise gradually, which is in contrast to other major property sectors. Additionally, many tenants are resorting to subletting their office spaces until their leases expire. On the other hand, occupancy levels for logistics real estate in North America, Europe, and Asia Pacific are currently at or near all-time highs. There are also positive indications suggesting that the retail sector is experiencing a revival. Investment managers interviewed by PwC highlighted the robust operational performance of their retail portfolios in the United States and Europe. This upward trend extends beyond the more resilient sub-sectors such as convenience stores, grocery stores, and retail parks. Selected shopping centers are demonstrating strong performance in the market as well.
The commercial real estate sector continues to face significant economic uncertainty for the remainder of 2023, with several key factors impacting its future. These factors include the uncertain interest rate environment and the evolving nature of office spaces. Over the period from March 2022 to May 2023, the Federal Reserve increased interest rates consistently for ten consecutive times. However, according to JPMorgan, multifamily properties continue to thrive. While the rate of rent increases has declined, the national vacancy rate for multifamily properties was 4.5% at the end of 2022. Vacancy rates vary across different metro areas, but the median vacancy rate in the country as of April stands at 3.9%.
Furthermore, JPMorgan noted that despite e-commerce comprising around 15% of retail, not all consumer needs can be met online. Certain services, like nail salons, barbershops, and sports bars, still require in-person visits. The industrial sector has experienced significant growth driven by e-commerce and the on-demand economy as well. The vacancy rate for distribution and warehouse spaces hit a record low of 4.1% in the second half of 2022, but it increased slightly to 4.2% in the first quarter of 2023. While demand for office space has been impacted by remote and hybrid work models, A-class office properties continue to perform well, especially those with leases lasting 10 years or more, which may be able to weather market corrections. On the other hand, B- and C-class office buildings, particularly those with shorter leases in non-prime locations, face challenges as the workplace evolves.
The real estate industry is undergoing significant changes driven by technology advancements and increased capital. FortuneBuilders observed that online property listing platforms, smartphone apps, virtual reality, and blockchain technology are expected to have a profound impact on real estate transactions. Buyers and renters now have access to online platforms, leading to more informed property searches. Moreover, blockchain technology is likely to be utilized for legal components of transactions, such as transferring deeds and sharing important documents, increasing trust and reducing intermediaries. Virtual reality will also gain popularity, allowing potential buyers to virtually tour properties without physically visiting them. Meanwhile, millennials are entering the real estate market with a preference for suburban areas and walkable neighborhoods, presenting new opportunities for investors in mixed-use and retail spaces. Overall, the future of real estate will be shaped by technological advancements and shifting buyer preferences.
We selected the following commercial real estate stocks based on the hedge fund sentiment toward each stock. We have assessed the hedge fund sentiment from Insider Monkey’s database of 943 elite hedge funds tracked as of the end of the first quarter of 2023. The list is arranged in ascending order of the number of hedge fund holders in each firm.
10 Best Commercial Real Estate Stocks To Buy According To Hedge Funds
Photo by Owen Lystrup on Unsplash
Best Commercial Real Estate Stocks To Buy According To Hedge Funds
SL Green Realty Corp. (NYSE:SLG) operates as a real estate investment trust and is dedicated to acquiring, managing, and optimizing the value of commercial properties in Manhattan. In the second quarter of 2023 to date, SL Green Realty Corp. (NYSE:SLG) has entered into agreements for 31 office leases, which encompass a total area of 299,137 square feet. This brings the total office leasing volume for 2023 to 803,819 square feet. Additionally, the company currently has a pipeline of office leases exceeding 1 million square feet.
On May 18, SL Green Realty Corp. (NYSE:SLG) declared a $0.2708 per share monthly dividend, in line with previous. The dividend is payable on June 15, to shareholders of record on May 31.
According to Insider Monkey’s first quarter database, 21 hedge funds were bullish on SL Green Realty Corp. (NYSE:SLG), compared to 20 funds in the prior quarter. Dmitry Balyasny’s Balyasny Asset Management is the biggest stakeholder of the company, with 1.14 million shares worth $26.80 million.
Like CBRE Group, Inc. (NYSE:CBRE), Simon Property Group, Inc. (NYSE:SPG), and Alexandria Real Estate Equities, Inc. (NYSE:ARE), SL Green Realty Corp. (NYSE:SLG) is one of the best real estate stocks to invest in.
Realty Income Corporation (NYSE:O) is a real estate investment trust that focuses on investing in and leasing independent, single-tenant commercial properties across the United States, Spain, and the United Kingdom. It is one of the best commercial real estate stocks on the radar of smart investors.
On May 15, Realty Income Corporation (NYSE:O) declared a $0.255 per share monthly dividend, in line with previous. The dividend is payable on June 15, to shareholders of record on June 1.
Stifel increased its price target on Realty Income Corporation (NYSE:O) to $71.25 from $71.00 and maintained a Buy rating on the shares on May 4. The firm informed investors that Realty Income Corporation (NYSE:O) reported its first-quarter Adjusted Funds From Operations (AFFO), which aligns with both the firm's estimate and the consensus estimate among analysts.
According to Insider Monkey’s first quarter database, 22 hedge funds were bullish on Realty Income Corporation (NYSE:O), compared to 24 funds in the prior quarter. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of the company, with 981,447 shares worth $62 million.
Boston Properties, Inc. (NYSE:BXP) is involved in the development, ownership, and management of high-quality office spaces in the United States. The firm primarily focuses on six major markets – Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, DC. Boston Properties, Inc. (NYSE:BXP) is one of the premier commercial real estate stocks to invest in.
On May 1, Argus reiterated a Buy rating for Boston Properties, Inc. (NYSE:BXP) but adjusted its price target for the shares to $70 from $82. According to the firm’s research note, Boston Properties, Inc. (NYSE:BXP) demonstrated solid growth in its Q1 revenues, and the management is actively prioritizing growth in sectors such as life-science buildings and co-working spaces. The recent decrease in Boston Properties, Inc. (NYSE:BXP)’s stock value presents an advantageous opportunity for investors to enter the market, especially considering the shares' above-average dividend yield of approximately 7.4%, as highlighted by Argus.
According to Insider Monkey’s first quarter database, 22 hedge funds were long Boston Properties, Inc. (NYSE:BXP), compared to 26 funds in the prior quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the largest stakeholder of the company, with a position worth $202.8 million.
Here is what Diamond Hill Long-Short Fund has to say about Boston Properties, Inc. (NYSE:BXP) in its Q1 2022 investor letter:
“Commercial real estate investment trust (REIT) Boston Properties (NYSE:BXP) has a solid balance sheet and good assets. However, as the largest public office REIT, it operates in a challenging space due to high capital expenditure needs, the ease of adding new supply and tenant leverage. BXP is also concentrated in large coastal markets that have high taxes and burdensome regulations, and subsequently have seen population outflows. We believe the combination of a tough business and a marginally worse environment given the rising acceptance of at-home work will be challenging over the long term for BXP.”
Brandywine Realty Trust (NYSE:BDN) is a real estate investment trust that focuses its investments on office buildings located in Philadelphia, Washington, D.C., and Austin. It is one of the top commercial real estate stocks to buy. On May 25, Brandywine Realty Trust (NYSE:BDN) declared a quarterly dividend of $0.19 per share, in line with previous. The dividend is payable on July 20, to shareholders of record on July 6.
On April 24, Truist maintained a Buy rating on Brandywine Realty Trust (NYSE:BDN) but trimmed the price target for the shares from $8 to $7. In a research note to investors, the firm stated that investors may be overly concerned about potential negative impacts on Brandywine Realty Trust (NYSE:BDN), even during an economic downturn. The REIT's pipeline of projects is reportedly expanding, and the management has expressed that there will be a significant increase in net operating income in Q2 due to improved occupancy rates, Truist informed investors.
According to Insider Monkey’s first quarter database, 23 hedge funds were bullish on Brandywine Realty Trust (NYSE:BDN), compared to 22 funds in the earlier quarter. Cliff Asness’ AQR Capital Management is a prominent stakeholder of the company, with 2.6 million shares worth $11.8 million.
Ryman Hospitality Properties, Inc. (NYSE:RHP) is a real estate investment trust that focuses on upscale convention center resorts and entertainment offerings within the lodging and hospitality sector. On June 7, Ryman Hospitality Properties, Inc. (NYSE:RHP) increased the size and finalized the pricing of a private placement of senior notes due 2028, raising $400 million instead of the initially announced $300 million. The private placement is scheduled to conclude on June 22, 2023, and is anticipated to generate approximately $393 million in net proceeds. Together with funds from a public equity offering and existing cash reserves, the company plans to finance the $800 million acquisition of the JW Marriott San Antonio Hill Country Resort & Spa.
On May 9, Deutsche Bank analyst Chris Woronka raised the price target for Ryman Hospitality Properties, Inc. (NYSE:RHP) to $128 from $126 while maintaining a Buy rating on the shares. According to the analyst, Ryman Hospitality Properties, Inc. (NYSE:RHP) is still in the early stages of effectively adjusting the pricing of a significant portion of its revenue sources. Woronka believes that Ryman is uniquely positioned within the hotel real estate investment trust sector as it benefits from an increasing proportion of group and convention business, which is now being priced to reflect the post-pandemic cost environment.
According to Insider Monkey’s first quarter database, 26 hedge funds were bullish on Ryman Hospitality Properties, Inc. (NYSE:RHP), compared to 27 funds in the earlier quarter. Mario Gabelli’s GAMCO Investors is the biggest stakeholder of the company, with 1.15 million shares worth $103 million.
In addition to CBRE Group, Inc. (NYSE:CBRE), Simon Property Group, Inc. (NYSE:SPG), and Alexandria Real Estate Equities, Inc. (NYSE:ARE), Ryman Hospitality Properties, Inc. (NYSE:RHP) is one of the top commercial real estate stocks to invest in.
Here is what Diamond Hill Small Cap Fund has to say about Ryman Hospitality Properties, Inc. (NYSE:RHP) in its Q4 2021 investor letter:
“Ryman Hospitality is a well-run, resiliently positioned REIT that has carved out a core competency in the group-travel business. The company owns 5 of the 10 largest convention-oriented resorts under the Gaylord Hotel brand, and it has a small entertainment business which owns iconic assets like the Grand Ole Opry and Ryman Auditorium. We believe the group-travel business will normalize and potentially be of heightened importance given the increase in remote work. Pandemic-related industry-wide disruptions coupled with the inflationary dynamic in construction should result in minimal new industry capacity over the next five years, favoring Ryman’s portfolio of assets.”
