FTSE Nareit All REITs Index Down 0.2% in October

REITs moved slightly lower in October as broader macroeconomic concerns put pressure on the market, according to analysts.

The total returns of the FTSE Nareit All REITs Index dropped 0.2 percent in October, while the S&P 500 posted a total return of 2.3 percent. For the first 10 months of 2017, total returns of the FTSE Nareit All REITs Index gained 6.6 percent, while the S&P 500 returned 17 percent.

Total returns of the FTSE Nareit All Equity REITs Index gained 0.1 percent in October and 6.2 percent through the first 10 months of the year. The total returns of the FTSE Nareit Mortgage REIT Index dropped 3.1 percent in October, but rose 16.3 percent for the year to Oct. 31.

The yield on the 10-year Treasury note rose 0.1 percent in October. Through Oct. 31, the yield was down 0.1 percent for the year.

Jeff Langbaum, senior analyst at Bloomberg Intelligence, noted that the rise in the 10-year Treasury note since mid-September has put pressure on interest rate-sensitive property sectors. Matt Kopsky, analyst at Edward Jones, agreed.

“REITs can manage the 10-year rising at a moderate pace, but the risk in the near term is rapidly rising interest rates,” Kopsky said.

According to Kopsky, REITs are lagging the overall market for other reasons as well. High commercial real estate property prices are making acquisitions more difficult, he noted. At the same time, property cash-flow growth is moderating across many property types due to supply-and-demand concerns as well as “generally difficult comparisons, given that we are now nine years into a bull market,” he said.

Langbaum, meanwhile, pointed to fundamentals as a sign of strength.

“Occupancies are high, rents are growing, supply is up in some cases, but demand in many instances is keeping pace,” Langbaum said.

Turning to the performance of property sectors during October, infrastructure REITs led the way with total returns of 6.6 percent. Timber REITs booked returns of 5.0 percent, while manufactured homes gained 4.4 percent during the month.

Retail REITs saw returns drop 4.0 percent during October, but Kopsky indicated investors might be overreacting. “Retail REIT fundamentals have moderated, but not nearly as bad as the price declines have indicated,” according to Kopsky.