Market Commentary

How well are stock-exchange listed Equity REITs positioned for the interest rate environment ahead? 

The apartment market has been riding a wave of robust demand and rapidly rising rents for the past several years, pushing multifamily into the leading ranks of commercial real estate. Recently, however, there have been some signs of softening.

One of the most important investment metrics is the term structure of correlations between any two assets.  Correlation measures the degree to which the returns for a pair of assets move together.

The bedrock of any investor’s portfolio—no matter how small, no matter how large—is an allocation to the broad U.S. stock market.  To go just the tiniest step further, most investors start with a mix of U.S. stocks and U.S. bonds.  The question is what to add to that basic portfolio.

As of the end of September 2016 the average dividend yield for stock exchange-traded Equity REITs was 3.70%.  That’s extremely low by historical standards: in fact, the average Equity REIT yield has been greater than 3.70% nearly 90% of the time stretching all the way back to the beginning of 1972. 

What happens if “two steps forward, one step back” turns into “two steps forward, two steps back”?

The REIT industry has evolved as it has expanded, and looks quite different today than it did a generation ago.

Total NOI of stock-exchange listed Equity REITs has nearly tripled over the past ten years, to more than $20 billion each quarter since mid-2015. 

The biggest question for the apartment sector lately has been whether the bulging pipeline of new supply would swamp the pent-up demand that accumulated during the Great Recession. Indeed, rental demand flagged during the winter as construction reached new highs, feeding worries about the outlook.

Investment real estate values increased by +4.1% during July 2016 according to the FTSE NAREIT PureProperty® Index Series, which provides the earliest measurement of changes in the market values of properties held for investment purposes.

The most recent data on state unemployment rates from the Bureau of Labor Statistics show that, compared with April, unemployment decreased in 22 states, increased in 11 states and was unchanged in 18 states.