The U.S. REIT market held steady in August, as the FTSE NAREIT All REIT Total Return Index inched up 0.46 percent for the month.
REIT returns lagged the broader market for the month. The S&P 500 gained 2.25 percent in August.
In a video interview with REIT.com, Brad Case, NAREIT’s senior vice president for research and industry information, offered his analysis of REITs’ overall performance. Case described August as a “quiet” month for REITs, which isn’t uncommon.
“Many investors and investment advisers are on vacation, so there’s often not a lot of activity in August,” Case said.
Case called the current state of the REIT market a “normal bull market,” with investors taking a more optimistic view of commercial real estate investment.
“Investors are increasingly sanguine about the recovery in the commercial real estate industry,” he said. “The downturn that we saw starting in early 2007 is over. People who were invested in REITs in January and February of 2007 have recovered all of their losses from the liquidity crisis, as well as from the economic downturn.”
Case cautioned that the evidence doesn’t necessarily indicate that the economic downturn has reached a conclusion. Instead, he said the market is giving off signals that investors are confident looking forward at the REIT industry.
“They’re comfortable with how REITs are going to return income from owning and leasing properties going forward, and so they are confident that they have a good investment in the commercial real estate market,” Case said.
From a longer-term perspective, Case pointed out that REITs have had total returns in the range of 20 percent in the last 12 months. That level of return is consistent with REIT bull markets of the past, according to Case. However, he warned that a bull market won’t inoculate REITs against down months.
“That doesn’t mean any particular month is going to be an up month,” Case said. “During a REIT bull market, you typically see about two up months for every down month. August was a moderate up month. I expect to see other months of just moderate progress and some other months with negative progress. But, overall, 20 percent per year on average returns has been the norm for the last three REIT market upturns.”