Few industries have suffered as much from higher interest rates over the past three years as ASX real estate shares.

Real estate investment trusts (REITs) usually have a reasonably high level of debt on their balance sheets compared to other businesses. REITs typically fund some of their property investments with debt, so with interest rates now much higher than before, they're paying a lot more interest to lenders.

Higher interest rates are also a headwind for property valuations because they make the passive income returns offered by property seem less appealing compared to safe(r) investments like bonds and term deposits.

Share prices of ASX real estate shares like Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW) and Rural Funds Group (ASX: RFF) have fallen by large double-digit declines (in percentage terms) and are now trading at significant discounts to their net asset values (NAVs).

Some experts believe now is the right time to examine the sector for opportunities.

JPMorgan is excited about ASX real estate shares

According to reporting by The Australian, JPMorgan thinks investors should increase their exposure to Australian REITs because interest rate cuts could lift earnings across the sector.

The broker assigned an overweight (buy) rating to several property names, including Vicinity Centres (ASX: VCX) and Abacus Storage King (ASX: ASK).  

JPMorgan analyst Richard Janes noted that 2024 saw a strong performance for Goodman Group (ASX: GMG), but it's neutral on that business now. The broker said:

In 2025, we believe portfolio outperformance will require a broader set of stock exposures. REIT earnings are at an inflection point, having seen growth wiped out by rising debt costs over the past two years.

We expect sector earnings growth to turn positive this year and accelerate over the next two years, offering an attractive above-trend three-year EPS compound annual growth rate of 7.8 per cent or 4.4 per cent ex-GMG.

Citi is bullish, too

The Australian reported that broker Citi also thinks ASX real estate shares could be a good pick in the current environment.

Some of Citi's picks in the sector include Goodman, National Storage REIT (ASX: NSR), Ingenia Communities Group (ASX: INA), Stockland Corporation Ltd (ASX: SGP), Scentre Group (ASX: SCG) and GPT Group (ASX: GPT).

Explaining Citi's bullishness about the sector, Citi analyst Howard Penny said:

Our outlook remains particularly strong for high-growth sub-sectors such as data-centres, retail, self-storage and land lease, where structural operational momentum continues to deliver robust returns.

We expect declining financing costs will provide additional tailwinds, supporting earnings growth across the broader sector.

However, we foresee a slower recovery in Australian office markets, where elevated vacancy rates and persistent tenant incentives are likely to delay a meaningful shift in the demand-supply dynamics.

Overall, things are looking more positive for the ASX real estate share sector.