Hi Richard,
We discussed property stocks in detail last week here. Our conclusion was “buying possibly early on earnings, but not necessarily early on valuation.”
Specifically, the A-REIT sector remains under pressure, down around 10% over the past year, with higher interest rates and long-end bond yields continuing to weigh on valuations. The RBA’s three rate hikes in early 2026—following three cuts in 2025—have increased funding costs and discount rates, driving a significant sector de-rating even as occupancy, rents and underlying operating fundamentals have generally remained resilient.
Importantly, the outlook varies materially across the sector. Convenience and supermarket-anchored retail remain relatively well positioned, with Charter Hall Retail REIT (ASX: CQR) and Region Group (ASX: RGN) benefiting from relatively defensive everyday spending and resilient occupancy.
In contrast, office and long-WALE REITs remain more sensitive to elevated bond yields, while office landlords must also contend with structural changes in workplace demand. The growing discount between some listed REIT valuations and private-market asset values could ultimately provide an opportunity, but greater confidence that long-end bond yields have peaked will be required.
Looking toward Christmas and into 2027, the RBA and bond yields remain the key swing factors. Any credible shift toward rate cuts would likely provide a meaningful re-rating catalyst for A-REITs.
- MM doesn’t believe the RBA will hike again in 2026, although we remain in the minority, with the RBA itself still concerned about upside inflation risks.
The two main ASX-listed exposures to neighbourhood and sub-regional shopping centres are RGN and CQR: we feel CQR offers a more active growth story while RGN is a steadier, more macro-sensitive play where the rate cut thesis is the primary driver of re-rating.
Vicinity Centres (ASX: VCX) and Scentre Group (ASX: SCG) provide greater exposure to large, destination-style shopping centres, making them more leveraged to a recovery in discretionary consumer spending. Stronger specialty sales should support rental growth, while further private-market transactions at or above book value could validate asset values and help narrow discounts to NTA. VCX has the clearer near-term earnings catalyst through the Chatswood Chase redevelopment, while SCG offers greater leverage to a broader premium retail recovery through the scale and quality of its Westfield portfolio.
- It’s been a tough week for all four retail REITs as results have rolled through, and while we think there is value in the sector, we’re happy to sit on the fence for now rather than increase our exposure into sector weakness.
