With the U.S. commercial real estate sector poised for a major comeback, here are three commercial real estate stocks to buy.
In February, “longtime investor” Sonny Kalsi told Barron's that he expects the commercial real estate sector to bounce back in 2025. The magazine noted that Kalsi, who co-manages BGO, the investment arm of Canadian insurance company Sun Life, handles about $80 billion in commercial real estate investments. While the bottom 25% of office property has died out during the work-from-home pandemic, the top quartile of offices is still full and paying high rents, Kalsi explained.
Moreover, buyers of the “middle 50% of office assets” stand to reap handsome gains. Meanwhile, the outlook for industrial real estate and data centers is brighter. Once the Federal Reserve starts to cut interest rates, banks will resume lending to commercial real estate companies, he said. Similarly, investment management firm Invesco predicted that lower interest rates will spur a recovery in commercial real estate later this year. Here are three commercial real estate stocks to buy:
CBRE Group (CBRE)
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In April, investment bank William Blair named CBRE (NYSE:CBRE) one of its four top stocks to help fuel a recovery in the commercial real estate sector.
At the time, William Blair reported that the real estate industry was already starting to recover, though the pace of sales remained slow. However, he said that demand for real estate services had started to increase in the previous quarter, and Barron's noted that CBRE offers those services.
Correlating with the latter information, CBRE's revenues rose 7% year over year to $7.935 billion in the last quarter. Additionally, net income increased 8% year over year to $126 million.
“Leasing activity beat expectations, with office leasing growth globally reflecting resilient economies and businesses' efforts to bring employees back to the office,” CBRE CEO Bob Sulentic said in a statement.
The company trades at a very low price-to-sales ratio of 0.84, and its rapid growth and low valuation make it one of the easiest commercial real estate stocks to buy.
Colliers International (CIGI)
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Colliers International (NASDAQ:CIGI) provides “professional commercial real estate and investment management services” around the world. The company operates outside of the U.S., so it is likely to be hit less hard by the work-from-home trend, which has been less intense in other regions, such as Asia.
In the first quarter, Collier's revenue increased to $1 billion from $966 million in the same period last year. Additionally, operating income jumped to $43.3 million from $22.1 million in the first quarter of 2023.
“Our focus on expanding our high-value, recurring service lines has delivered significant results, as we restructure and reposition the business for the future,” CEO Jay Hennick said in a statement.
The firm reported that its Outsourcing & Advisory division performed particularly well in the first quarter, driven by its engineering and project management business, with the latter trend expected to continue throughout the year. Additionally, Colliers said it is “cautiously optimistic about improved transaction velocity in the second half of 2024.”
The company still expects earnings per share to grow 15% in 2024.
Boston Properties (BXP)
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In an update earlier this month, office space owner Boston Properties (NYSE:BXP) reported that it was leasing more office space than at any point in the past 12 months. Additionally, the company said that its share of the office leasing market has increased significantly. Boston Properties also said that it is not having any trouble obtaining financing.
In the longer term, the company also expects to benefit from growing demand for office space in New York's technology sector, one of its key markets.
The company's revenue for the first quarter increased 4.5% year over year to $839.4 million, while net income increased to $79.9 million from $77.9 million in the first quarter of 2023. The company reported that its top-quality office space had an “occupancy rate of 91.0% and a leasing rate of 92.8%.”
On average, analysts expect the company's EPS to grow to $2.18 this year and rise to $1.21 in 2023. Overall, the company's business appears to be recovering strongly, making it one of the best commercial real estate stocks to buy.
On the date of publication, Larry Ramer 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 author in accordance with InvestorPlace.com's Publishing Guidelines.
Larry Ramer has been researching and writing about U.S. stocks for 15 years. He has worked for The Fly and Globes, Israel's largest business newspaper. Larry began writing his column for InvestorPlace in 2015. Some of his highly successful contrarian stock picks include SMCI, INTC, and MGM. Contact him on Stocktwits: @larryramer.