REITs outpaced the broader stock market during November, with gains seen across the breadth of the industry.
The total returns of the FTSE Nareit All REITs Index rose 4.5 percent in November, while the S&P 500 gained 2.0 percent. The total returns of the FTSE Nareit Mortgage REIT Index added 1.8 percent, while the yield on the 10-year Treasury note fell 0.2 percent.
“It was more of a risk-on month in general…it was a good month for everyone,” said Matt Werner, portfolio manager at Chilton Capital Management. He added that even those sectors that normally do well in times of rising rates, notably those where properties operate with short leases, still performed well. Based on what he has heard from REIT management teams, “2019 seems like it’s going to be another good year,” Werner said.
Michael Bellisario, senior research analyst at Baird, pointed out that interest rates fell 20 to 25 basis points during the month, providing a “nice tailwind for real estate stocks in November.” Furthermore, “a lot of the macro factors are at or near peak levels,” he added.
Turning to specific sectors, apartment REIT returns rose 7.7 percent during November. Chris Wimmer, vice president at Morningstar Credit Ratings, noted that “labor markets are tight. That’s putting more and bigger paychecks into the hands of potential apartment tenants.”
On the demand side, Wimmer noted that home prices have spiked relative to rents. “These are levels that we haven’t really seen since before the recession, so it just means that it’s even more expensive to purchase a home relative to what it is to rent an apartment.”
Bellisario noted that “it’s gotten harder to buy a home because less is for sale because people don’t want to move, interest rates are moving higher, [and] it’s harder to build a home because costs are going up.”
In other sectors, returns for health care REITs gained 8.3 percent in November, while data center REIT returns added 5.9 percent. Industrial REIT returns added 4.6 percent last month.