The Market Commentary blog on reit.com presents analysis of the macro- and micro-economic fundamentals impacting the REIT and commercial real estate industry. The Nareit economics team offers their commentary on the state of the market, the outlook for commercial real estate and breaking macroeconomic news. The opinions set forth here are solely those of its author(s), and do not necessarily reflect the views of the Nareit or its membership.
REITs, Real Estate and Recession Risks: Where Are We in the Cycle?
We often get questions about where we are in the cycle. REITs and real estate are tied closely to the macro economy’s turns through expansion and recession. While the crystal ball is never very clear about the medium-term outlook, we can make several statements about recession risks.
Multifamily Starts Slip in May, But Remain on Rising Trend
New construction of multifamily housing units slowed a bit in May from April’s torrid pace, yet remained on a rising trend. Multifamily housing starts were at an annualized rate of 349,000 units, down 18.5% from April but still well above the 300,000 unit trend that had been in place for the decade or so prior to the Great Recession.
Fundamental Forces for REITs & Real Estate Are Back on Track
Nearly every property sector for REITs & commercial real estate depends on sustained growth of jobs, incomes and consumer spending to drive occupancy and rent growth. The latest data indicate that the recovery in the fundamentals for REITs & real estate remains on track, despite several setbacks during the winter and early spring.
West-Region Real Estate Outperforms During a Lukewarm May 2015
Real estate values and total returns retreated slightly in May, with assets in the West region of the U.S. outperforming holdings in other parts of the country.
NAREIT T-Tracker Shows 8 Percent Growth
The T-Tracker Series contains a wealth of information that should prove useful to virtually anyone who invests, analyzes or researches REITs and real estate. Detailed tables on FFO, NOI and Dividends Paid by property type, as well as spreadsheets with historical data, are available.
Multifamily REITs See an Uptick in Construction and Demand
Builders took advantage of spring weather and broke ground on 389,000 (annualized) multifamily units in April, a 32% increase from March. After a long and snowy winter season kept many new projects on hold, the strong uptrend in construction from the past several years appears to be underway again.
Listed Equity REITs: Long-Term Returns by Property Type
Total returns from a passively managed investment in the broad listed U.S. equity REIT market averaged 11.46% per year over the 20 years ending April 2015, substantially better than the broad stock market at just 9.50% per year.
Listed Equity REITs: 25 Years of Income and Capital Growth
Total returns from a passively managed investment in listed U.S. equity REITs averaged 11.45% per year over the 25 years ending April 2015, compared to just 9.95% per year for large-cap U.S. stocks.
Listed REIT-Stock Correlation and Beta at 12-year Low
Some market participants may be concerned about the future course of stock prices, but the correlation between listed REITs and the broad stock market is at its lowest level in more than 12 years, suggesting that whatever factors happen to drive the non-REIT part of the market will not necessarily spill over to affect the REIT market.
Job Growth Rebounds in April After Soft March Numbers
April non-farm payrolls and unemployment numbers offer encouragement that the labor market is regaining momentum after a weak show in March. The job market added 223,000 jobs in April, matching its 2014 trend and outpacing average growth in 2015 Q1. Further, the unemployment rate fell to 5.4%, its lowest level post-recession.
Construction Spending Lower Than Expected in March 2015
Construction spending fell nearly 60 bps to a seasonally adjusted $966.6 billion in March, its lowest level in six months. Following a flat reading in February, growth in construction spending slowed to a 2% annual rate in March.
REIT Volatility Remains Subdued
While some market participants raised concerns about market volatility during March and April, the listed REIT market remained relatively calm. As the market closed on May 5 the 20-day rolling standard deviation of trailing daily returns for the FTSE NAREIT All Equity REITs Index was 0.82%, slightly below the median value going all the way back to the beginning of 1999.