REIT Market Snapshot: REITs' Outperformance Sustained
Despite dipping in August, REIT returns continue to outpace the broader markets. In the first eight months of 2010, equity REIT returns increased nearly 14 percent. NAREIT Vice President of Research & Industry Information Brad Case notes that publicly traded REITs have a "fairly strong competitive advantage" relative to private investors in commercial real estate, which should benefit the industry "several years into the future." REITs' access to solid sources of debt and equity capital give them an edge over the private market, according to Case, putting them in position to take advantage of distressed selling. "To a great extent, investors are really responding to the fact that REIT earnings are likely to grow very strongly over the next few years, both because of those opportunities to pick up properties at good prices and also because of the eventual recovery of the economy," he says. Case also says REITs still have room for their returns to improve, as they continue to trail the market highs of 2007 by approximately 30 percent. Case points out that mortgage REITs have averaged returns of 9 percent per year on a 10-year basis, as well as a current dividend yield of 14 percent.