REIT returns outpaced the broader market in September and for the year-to-date, as a moderate growth and low interest rate environment continued to favor the sector.
The total returns of the FTSE Nareit All REITs Index rose 2.1% in September, outpacing the S&P 500, which rose 1.9% during the same period. The total returns of the FTSE Nareit Mortgage REIT Index gained 6.7% last month, while the yield on the 10-year Treasury rose 0.2%.
For the year to Sept. 30, the FTSE Nareit All REITs Index was 27.4% higher, while the S&P 500 was 20.6% higher.
“Low rates and a little bit of nervousness in the broader markets have helped REITs. You have limited supply, steady economic growth, and so far the trade war hasn’t showed up in any of the REIT leasing stats, so it’s been good for real estate,” said Alexander Goldfarb, senior REIT analyst at Sandler O’Neill + Partners, L.P.
Lindsay Dutch, REIT equity analyst at Bloomberg Intelligence, noted that “we still have a low 10-year Treasury yield and that’s helping REITs to generally outperform.”
Turning to specific REIT sectors, data center REIT returns posted the strongest gains on a year-to-date basis—48.5%. During September, returns in the sector advanced 5.0%.
Lodging REIT returns posted gains of 6.9% in September. For the year to Sept. 30, returns are 10.6% higher.
David Katz, managing director at Jefferies LLC, noted that the deal market for hotels “has quieted down somewhat, at least from the perspective of the publicly traded REITs…a number of REITs are in a bit more of a harvest mode or execution mode than deal mode.”
Meanwhile, returns for shopping center REITs were 9.4% higher in September, with returns 25.5% higher for the year through September. Returns for retail REITs overall were 5.7% higher in September and 13.2% higher for the year to Sept. 30.
Goldfarb noted that shopping center REITs have had a strong performance this year due to “a lot more liquidity coming into the sector on the asset side.”
Industrial REIT returns advanced 2.0% in September, and 41.8% for the year-to-date, amid continued demand for last-mile warehouse properties.