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Quick Study: REITs Just Below S&P in October

11/01/2013 | By Sarah Borchersen-Keto

In the latest edition of Quick Study with REIT.com, Brad Case, NAREIT’s senior vice president for research and industry information, offered an analysis of the REIT market’s performance in October.

During the month the FTSE/NAREIT All REIT Index saw its total returns gain 4.1 percent, while the S&P 500 was up 4.6 percent in October. Total returns on equity REITs were up 4.3 percent on the month.

“October was a good month for REITs,” said Case, noting that their performance was “just a shade less” than the stock market. In fact, REITs led the stock market for most of October, but a downturn in the market in the last few days of the month fueled by interest rates concerns hit REITs harder than other sectors, according to Case.

Case said he continues to be surprised by the market’s negative reaction to possible upticks in interest rates.

“What we’ve seen, historically speaking, is that when interest rates go up, it’s because the economy is doing better, and that’s exactly what the Federal Reserve is doing. The Fed is saying that if the economy continues to strengthen, then we won’t need to do the asset purchases and we’ll be in a position to taper. The market seems to have responded as if the Fed is talking about raising interest rates even if the economy is not doing well,” Case noted.

Looking at REIT performance for the year as a whole, Case pointed out that equity REITs are up 7.5 percent through the first 10 months of the year. While the gain is below levels seen in the market overall, he emphasized that REIT performance is “nothing to be disappointed about.” 

The strongest sectors in the past month were industrial and retail, especially freestanding retail shopping centers. The retail and freestanding sectors both posted gains of more than 6 percent in October, and they are up 12 percent and 14 percent, respectively, for the year as a whole, Case said.

Case also highlighted the performance of the commercial mortgage REIT sector, which has gained more than 26 percent on the year, while also posting yields above 10 percent. “In an environment where it continues to be difficult to find strong yields, REITs still stand out, and even equity REITs have yields above 3.5 percent,” Case said.