Real estate stocks could outperform in a stagflationary environment.
Persistently elevated inflation and sharply rising interest rates have investors concerned about 1970s-era stagflation returning in 2022. The last time stagflation was a problem, real estate was a top-performing sector in the market. Buying physical property can be difficult and expensive, but investors can easily invest in real estate by buying shares of real estate investment trusts, or REITs. There are many different types of REITs, and most of them pay sizable dividends and serve as a reliable source of income. Here are eight of the best real estate stocks to buy in 2022, according to CFRA analysts.
Prologis Inc. (ticker: PLD)
Prologis is an industrial REIT that specializes in logistics real estate. Analyst Michael Elliott says Prologis benefits from strong demand in locations where it can be extremely difficult for competitors to obtain zoning entitlements. Elliott says Prologis properties can support $28 billion in developments, making the REIT a unique investment opportunity given land scarcity in these key markets. He says concerns over slowing e-commerce growth are overblown and the pricing environment for Prologis should remain favorable. Elliott projects between 8% and 10% revenue growth in 2022. CFRA has a “strong buy” rating and $125 price target for PLD stock, which closed at $121.58 on July 8.
Equinix Inc. (EQIX)
Equinix is a specialized REIT and is the world’s largest data center operator. Elliott says Equinix has limited competition, opportunities for site expansion and a high degree of long-term earnings visibility. He says the company’s cloud-based global platform and its diversified infrastructure differentiates Equinix and makes it the preferred partner for some of the largest technology companies. In addition, Equinix recently acquired MainOne for $320 million, which Elliott says will extend Equinix’s geographical footprint into Africa. He projects 8% revenue growth in 2022 and 9% growth in 2023. CFRA has a “buy” rating and $845 price target for EQIX stock, which closed at $650.52 on July 8.
Public Storage (PSA)
Public Storage is the largest owner of self-storage facilities in the U.S. Elliott says the company has a diversified, high-quality portfolio of properties and is well positioned to take advantage of positive trends in the self-storage industry. He says demand will likely continue to outpace supply through at least the end of 2022, supporting favorable pricing dynamics. Elliott says Public Storage can raise rental rates in the mid-to-high-teens percentage range while maintaining near-record-high occupancy rates. In addition, he says Public Storage has opportunities for additional acquisitions. CFRA has a “buy” rating and $380 price target for PSA stock, which closed at $315.83 on July 8.
Realty Income Corp. (O)
Realty Income is a retail REIT that owns, develops and manages U.S. retail real estate with a focus on single-tenant buildings. Elliott says Realty Income is more insulated from potential slowdowns in consumer spending than its peers, making it potentially resistant to a U.S. recession. In addition, Elliott says Realty has a long history of maintaining high occupancy rates and growing dividends, even during economic slowdowns. Finally, the REIT’s recent acquisition of VEREIT Inc. helps boost its economies of scale while reducing its exposure to theater assets the fund currently holds. CFRA has a “buy” rating and $76 price target for O stock, which closed at $68.98 on July 8.
Equity Residential Properties Trust (EQR)
Equity Residential is a residential REIT that owns and operates apartment properties throughout the U.S. Analyst Kenneth Leon says Equity has opportunities to raise rental rates in 2022, especially in coastal markets, where demand is recovering faster than in urban markets. Leon says single-family homes are unaffordable for homebuyers in California, driving Equity’s home rental revenue. Longer term, Leon says potential Gen Z tenants will be starting their careers and joining the renter population, supporting Equity’s demand. Leon projects between 11% and 13% same-store revenue growth in 2022. CFRA has a “buy” rating and $103 price target for EQR stock, which closed at $71.37 on July 8.
CBRE Group Inc. (CBRE)
CBRE is one of the world’s largest commercial real estate services and investment companies. Elliott says CBRE shares are attractively valued, and its office leasing business is recovering well, especially in international markets. In fact, CBRE’s global leasing revenues are now 20% above Q1 2019 levels as the company expands into high-growth industrial and multifamily markets. Elliott says CBRE has a pristine balance sheet and plenty of liquidity to pursue merger opportunities or increase share buybacks. He projects revenue growth of between 18% and 20% in 2022. CFRA has a “buy” rating and $94 price target for CBRE stock, which closed at $75.85 on July 8.
Alexandria Real Estate Equities Inc. (ARE)
Alexandria Real Estate Equities is an office REIT that specializes in office and laboratory space for the life sciences industry. The company’s top markets are Boston and San Francisco. Leon says Alexandria has unique tenant rental revenue risk stemming from its high exposure to start-up biotech companies. However, Leon says more than half of the company’s tenant base is made up of investment-grade or publicly-traded large-cap tenants. Leon projects between 12% and 14% revenue growth for the next two years and 2022 occupancy rates of at least 95%. CFRA has a “buy” rating and $210 price target for ARE stock, which closed at $146.35 on July 8.
Extra Space Storage Inc. (EXR)
Extra Space Storage is one of the largest publicly traded self-storage REITs. Elliott says Extra Space has exceeded expectations throughout 2021 and early 2022 by taking advantage of high demand and strong occupancy and consistently raising rental rates. He says these trends should continue throughout 2022 with net operating income growth remaining near record levels. In the longer-term, Elliott says e-commerce growth will continue to drive rental demand as retailers add last-mile delivery solutions. He projects between 15% and 18% revenue growth for Extra Space in 2022. CFRA has a “buy” rating and $209 price target for EXR stock, which closed at $173.09 on July 8.
8 best real estate stocks to buy:
— Prologis Inc. (PLD)
— Equinix Inc. (EQIX)
— Public Storage (PSA)
— Realty Income Corp. (O)
— Equity Residential Properties Trust (EQR)
— CBRE Group Inc. (CBRE)
— Alexandria Real Estate Equities Inc. (ARE)
— Extra Space Storage Inc. (EXR)
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Update 07/11/22: This story was published at an earlier date and has been updated with new information.