The real estate sector faced a mixed valuation environment in 2024. Economic factors affecting real estate included:
- rising operating costs, which pressure profit margins
- challenges due to higher interest rates, which increased borrowing costs, slowing project launches for developers and slowing housing demand for real estate service providers
- for REITs, rising interests made dividend yields less competitive compared to bonds, but industrial and healthcare REITS performed better due to high tenant demand and long-term lease stability after the pandemic downturn reversed
Real Estate Company Valuation Multiples
The valuation multiples analysis were conducted across the following sub-categories of the real estate sector:
- Operating companies (e.g., property managers)
- Service providers (e.g., brokers)
- Developers
- REITs
For mortgage finance companies specifically, check out the valuation multiples post for 2024 here.
Real Estate Operating Companies Valuation Multiples
Compared to the 2023 real estate valuation multiples, the median revenue multiple rose for operators to 4.2x. The median EBITDA multiple declined to 15.7x for operators and the PE ratio increased to 18.4x.
Revenue growth from increased occupancy may have attributed to higher revenue valuation, but a focus on short term profitability may have driven investors’ valuation of EBITDA multiples lower.
Real Estate Brokerage Valuation Multiples
For real estate service providers such as title service and brokers, the median revenue multiple decreased to 0.6x. The median EBITDA multiple increased to 18.4x. The median PE ratio increased.
Real Estate Developers Valuation Multiples
In 2024, real estate developers maintained a stable revenue multiple at 2.0x. The median EBITDA multiple decreased slightly to 8.9x, and the median PE ratio decreased.
However, with limited companies in the data set, the direction change of the multiples are not reliable.
REIT Valuation Multiples
For REITs, the median revenue multiple was 4.8x. The median price to book value multiple was 1.6x. The median PE ratio was 29.6x.
One of the attractive qualities of investing in REITs is the dividend yield. The median dividend yield in 2024 was 4.3%.
However, this was competitive to high yield savings account interest rates that were offered in most of 2024 at a target range between 4.25% and 4.5%.
As we see interest rate cutes in 2025, REITs maintaining their dividend yield will increase the valuation multiples, which can occur if the portfolio companies can increase profitability.
Real Estate Companies Margins
Real Estate Operating Companies Margins
Real estate operators had a median gross margin of 45%, median EBITDA margin of 27%, and median net profit margin of 15%.
Real Estate Service Providers Margins
Real estate service providers had the thinnest margins due to the nature of their business as service providers are competitive in pricing.
These companies had a median gross margin of 28%, median EBITDA margin of 6%, and median net profit margin of 2%.
Real Estate Developers Margins
Real estate developers have a high upfront cost but can be profitable for a long time after they break even if they are successful with their development projects.
Real estate developers had a median gross margin of 24%, median EBITDA margin of 16%, and median net profit margin of 11%.
REITs Margins
REITs can demonstrate economies of scale with a central operation across their diverse portfolio of real estate investments.
As such, they often show the highest margins. REITs had a median gross margin of 67%, median EBITDA margin of 56%, and median net profit margin of 18%.
What to Look for in Real Estate Valuations in 2025
In 2025, real estate valuations will hinge on the broader economic environment.
- While interest rates are expected to remain relatively high, a stabilization could alleviate some pressure on borrowing costs for developers, potentially revitalizing project pipelines and enhancing valuations, which will benefit developers.
- Operating companies will likely focus on cost efficiencies as inflationary pressures persist.
- Service providers could benefit from increased transaction activity if economic growth picks up.
- For REITs, the focus will remain on sectors with strong fundamentals, such as logistics and healthcare, as these are expected to outperform in a slower economic environment.
- Potential changes in regulations, especially those affecting property taxes and development incentives, could impact profitability and valuations across all real estate sub-industries.
How To Use Valuation Multiples To Value a Company Refresher
For those who are not familiar with using valuation multiples to value companies, see posts I wrote below as helpful guides:
- How to value a company based on revenue
- How to value a company based on EBITDA
- How to value a company based on earnings
- How to find your own valuation multiples
- Other posts on how to value a company
Download Data Set
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