Like broad markets, real estate stocks had a turbulent year in 2023. The first half of the year saw substantial downward pressure in both commercial and residential sectors due to interest rate hikes. But the latter half offered renewed hope as physical real estate pricing and Real Estate Investment Trusts (REITs) surged. The recent rally points to great possibilities for real estate stocks in 2024. Historically, REITs outperform wider market cycles after a Federal Reserve tightening period, with REITs averaging a 20.9% annualized gain four quarters after a quantitative tightening cycle ends.

If rumors that the Fed is finished with rate hikes are ture, REITs and real estate stocks could have their best year in decades. But don’t let that enthusiasm cloud your judgment. Standard due diligence rules still apply, especially as remote work trends and high mortgage rates continue pressuring certain real estate sectors. For investors wondering what the best real estate stocks for 2024 might be, here are three top picks.

Realty Income (O)

It’s hard to cover top real estate stocks for 2024 (or real estate stocks in general) without mentioning Realty Income (NYSE:O). The stock suffered in 2023 dropping almost 10% and trading at just 1.32x book value. But that is what makes this real estate stock a steal for income investors, especially if you add it to a retirement portfolio to appreciate over the long run. Beating this real estate stock’s durability and longevity is tough.

However, some bearish headwinds are putting pressure on Realty Income beyond basic economic concerns and higher interest rates. Most of the stock suppression came on the heels of Realty Income’s announced Spirit Realty Capital (NYSE:SRC) acquisition, due to close in 2024’s first quarter. While expanding through acquisition points to financial strength and seems like great news, there are inherent downsides.

Beyond overvaluation and dilution, the deal reveals an important point for shareholders. The merger will make Realty Income the fourth-largest REIT and 150th-largest S&P 500 member by enterprise value. Paradoxically, this cuts into O’s growth potential, as smaller deals won’t be worth the time invested.

This ceiling forces management to expand into riskier territory that counters its core value proposition of low-risk/high-demand leasing. Namely, Realty Income is breaking into gambling and similar high-risk sectors. Whether this was a one-time deal or a full pivot into discretionary diversification isn’t yet clear. Still, at today’s valuation and a respectable 5.33% forward yield, it’s tough to beat this real estate stock in 2024.

Healthpeak Properties (PEAK)

Healthcare is one of the safest sectors to invest in long-term, and Healthpeak Properties (NYSE:PEAK) is one of a handful of real estate stocks within the industry that remain undervalued while offering a high dividend yield. The most popular healthcare real estate stocks usually focus on care facilities and hospitals. In contrast, PEAK’s portfolio focuses on medical office space and life science assets, although it holds some skilled nursing, housing and hospital properties. Today, PEAK offers investors a 6.01% forward yield, beating high-performing short-term Treasurys.

PEAK’s strategic path forward is unique compared to other healthcare real estate stocks, making it an important diversification tool. Amid the pandemic, PEAK ditched most of its senior housing portfolio to focus on higher-end life sciences and, critically, private-pay providers. Though America’s population is aging and senior care facilities will be important, divesting itself from that sector reduces competitive risk while also avoiding cost-cutting legislative mandates that would cut into its bottom line.

Instead, PEAK focuses on those private-pay facilities that will continue unabated even if national healthcare expansion eats into thin margins for other real estate stocks. With a solid strategy centered on a more targeted offering, PEAK is another top choice for real estate stocks for 2024.

CoStar Group (CGSP)

CoStar Group (NASDAQ:CSGP) isn’t a REIT but stands out as an important real estate stock nonetheless. The company offers a suite of marketing services to commercial property and real estate players globally, making it one of just a few top real estate stocks not actively managing properties.

The company boasts a deep wellspring of analytics and data-driven tools that service buyers and sellers alike, making the company a cornerstone within the market. This also helps make CGSP more bulletproof compared to other real estate stocks. Since the company’s services tend to be market-agnostic and less affected than directly invested real estate stocks, CGSP returned more than 12% this year despite turmoil in the larger real estate market.

If market forecasts for 2024 hold true, CGSP might be the top real estate stock to buy. If nothing else, holding this stock alongside a handful of diversified REITs spreads out your risk more than a large concentration in riskier assets.

On the date of publication, Jeremy Flint did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.