Fortune recently reported Capital Economics data that suggests property values for U.S. commercial real estate fell by $590 billion in 2023, will drop another $480 billion in 2024, and a further $120 billion in 2025, a three-year kick-to-the-head of commercial real estate stocks.
“‘A lot of what’s going to drive next year is just continued maturities,’ or debt coming due at a time when refinancing isn’t so cheap, said Kevin Fagan, head of commercial real estate analysis at Moody’s Analytics. This year, Fagan said, banks and other lenders have offered a lot of extensions and workout agreements to property owners, but that generosity won’t last forever,” Fortune contributor Alena Botros wrote in late December.
According to Capital Economics chief deputy property economist Kiran Raichura, office properties may not recover until 2040, which is over a decade and a half.
That doesn’t paint a very enticing picture for investing in commercial real estate stocks. However, as Botros points out, the office market accounts for just 20% of the commercial real estate market.
There are places to put your money to make money in 2024. Here are three ways to do this.
CoStar Group (CSGP)
CoStar Group (NASDAQ:CSGP) specializes in information, data analytics, and online marketplaces for the commercial and residential property markets in the U.S., Canada, and several European countries. Founded in 1987, it has 75 offices in 15 countries.
Some of its well-known brands include LoopNet, Apartments.com, Homes.com, BizBuySell.com, and several others. On Dec. 12, 2023, it completed its acquisition of the UK-based residential property portal, OnTheMarket plc, for £99 million ($126.1 million US). The move strengthens its position in the UK residential property market.
In Q3 2023, it reported $625 million in revenue, 12% higher than a year earlier, while its net income was $91 million, 25% higher year-over-year.
Sixteen analysts cover CSGP stock. Of those, 13 rate it Overweight or an outright Buy with a $95 target price, 15.3% higher than where it’s currently trading. It’s not cheap at 43.5x its estimated 2025 earnings per share of $1.89.
In early October, the company reported that Homes.com went over 100 million unique visitors in September, making it one of the two most heavily trafficked real estate portals in the U.S. All of the company’s U.S. real estate portals combined had 160 million unique visitors in September, more than Redfin.com and Realtor.com combined.
This is one example of how CoStar continues to grow.
Alexandria Real Estate Equities (ARE)
Alexandria Real Estate Equities (NYSE:ARE) is a REIT founded in 1994. Its entire history has focused exclusively on owning, operating, and developing life science, agtech, and advanced technology mega campuses in AAA innovation cluster locations.
As of Sept. 30, 2023, it had 75.1 million square feet of space either leasing (93.7% occupancy rate) or in development, with more than 800 tenants from the above industries.
Unlike general office workers, working from home is hard for people in these industries. That makes its properties slightly less immune from the move to less office space.
On Jan. 4, the REIT celebrated its 30th year in business.
“Thirty years ago, we saw the remarkable early potential of the life science industry, and today we are honored to be the trusted partner to leaders in this secularly growing industry who rely on our essential Labspace assets to advance and help safeguard their mission-critical work on truly groundbreaking therapies and cures,” stated Joel S. Marcus, Executive Chairman and founder of Alexandria.
The REIT’s annual dividend payment of $5.08 yields a reasonably attractive 3.9%. Of the 13 analysts that cover the REIT, 12 rate it Overweight or a Buy, with a $138.50 target price, 7% higher than where it currently trades.
Its shares trade at 44.7x its 2024 EPS estimate of $2.90 and 34.2x its 2025 EPS estimate of $3.79.
Prologis (PLD)
Prologis (NYSE:PLD) is a logistics REIT. Founded in 1983, it manages nearly $200 billion in assets encompassing 1.2 billion square feet in 19 countries.
It has more than 6,700 business-to-business and retail/online fulfillment customers. Approximately two-thirds of its logistics space is in the U.S. Its top two customers are Amazon (NASDAQ:AMZN) and Home Depot (NYSE:HD).
Over the past five years, it’s grown core funds from operations (CFFO) and its dividend by 12% compounded annually, considerably higher than its logistic REIT peers and other blue-chip stocks.
CoStar recently reported that logistics leasing in 2023 returned within 2% of the 10-year occupancy average before COVID. In the past year, businesses have leased nearly 33 million square feet of logistics and industrial space, according to Cushman & Wakefield (NYSE:CWK) data.
If Prologis’s Q3 2023 occupancy rate of 97.1% is any indication, the data from 2023 is spot on. That said, negative consumer sentiment remains, so it is building its landholdings to ensure it has plenty when the time is right to expand. It could be sooner than investors think.
Of the 23 analysts covering its stock, 20 rate it Overweight or Buy, with a $142 target price. It trades at 35.1x its 2025 EPS estimate of $3.80. Its annual dividend payout of $3.48 yields 2.6%. Its stock is up 114% over the past five years, nearly 10x better than the iShares Cohen & Steers REIT ETF (BATS:ICF).
It’s an excellent long-term income and capital appreciation commercial real estate play.
On the date of publication, Will Ashworth did not have (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.
