Poll: REITs Expected to Beat S&P 500 Index in Next Year

Real estate industry professionals expect REITs to outperform the S&P 500 Index during the next 12 months, according to a poll from BMO Capital Markets.

The poll of  attendees at the BMO Capital Markets 10th Annual North American Real Estate Conference in Chicago shows that 45 percent of institutional investors expect REITs to outperform the S&P 500 Index by more than 3 percent in the next year, while 35 percent said REITs could outperform the benchmark by as much as 10 percent.

In a similar poll conducted last year by BMO, only 13 percent of poll respondents predicted that REITs would outperform the S&P 500.

Poll respondents said the expected improvement in REIT performance is partly due to mainstream investors becoming more interested in the sector. Stock exchange-listed Equity REITs and other listed real estate companies will be reclassified from the Financials Sector and elevated to an 11th headline Real Estate Sector of the Global Industry Classification Standard (GICS) next fall. According to the poll data, 65 percent of respondents anticipate that the new classification will help REITs draw more interest from mainstream investors.

“Corporate and investor attendees alike expect the flow of funds from mainstream investors to increase, albeit marginally, as a result of real estate obtaining its own GICS,” said Paul Adornato, analyst for BMO Capital Markets and.

Further, the poll found that 52 percent of respondents expect residential real estate to be the best performing subsector among REITs in 2015. An overwhelming majority of respondents, 84 percent, also expect a rise in U.S. 10-year Treasury yields during the next 12 months.

“BMO’s outlook on the space is positive, despite the prospects of higher interest rates,” said John Kim, a REIT analyst with BMO Capital Markets.

“Rising rates are already expected in the market, resulting in wide disparities between public and private market valuations, which we do not believe are sustainable over the long term,” Kim said.