NAREIT Investment Study Sees Capital Flow Into Healthcare, Telecom, Data Centers

Data centers, telecommunications and health care assets are among the hottest investments right now in the REIT space — that is, if you follow the money being invested by the nation’s largest real estate investment funds. 

NAREIT — the National Association of Real Estate Investment Trusts — recently released its second-quarter 2024 investment tracker, an analysis of data collected from the 27 largest actively managed real estate funds documenting where fund managers have invested capital into property-specific REITs. 

Nareit found that while multifamily remained the most popular property sector (17.6 percent of all active investments), the next most popular property sectors in the second quarter of 2024 were telecommunications (14.2 percent), health care (13.6 percent), industrial (12.2 percent) and data centers (11.7 percent). 

With the third-highest percentage of investment capital in the quarter, health care shot up to its highest investment favorable ranking since 2010, according to Nareit 

Year-over-year, telecommunications investment rose by nearly 3 percent, health care investment rose by 2 percent, and data center investment increased by 1 percent. Conversely, residential investment declined by 5 percent, while industrial investment declined by nearly 3 percent. 

“There is a story to tell every quarter about what these active managers are doing — they are, moving their allocations every quarter, looking at the economy and supply and demand forces, and for this quarter the story is moving health care into the No. 3 spot,” said Nicole Funari, vice president of research at Nareit. “Telecom was historically underweight in these funds, but we’ve seen telecom flip from being very underweight to the second highest in investor allocation.”  

Examples of actively managed real estate funds collated and studied by Nareit in the survey include Nuveen, PGIM and Fidelity, according to Funari. 

“Fifty percent of market cap is held in activity managed funds, and since we have this group of dedicated active managers, the question is how do we incorporate their insight?” she explained.  “They are the funds generating alpha on deep knowledge of the commercial real estate industry, and we wanted to see where they are investing, what sectors they are moving in and out of.”

While health care and telecom are the new darlings, the investment class has decisively fallen out of love with office. The beleaguered office sector made up less than 2 percent of REIT equities investments in the second quarter of 2024. By comparison, office made up 8.9 percent of equities investments in 2018 and 8.6 percent in 2019, according to Nareit data. 

Brian Pascus can be reached at bpascus@commercialobserver.com