REIT Fundamentals Reasonably Strong Heading into 2019

Fundamentals for the REIT industry look reasonably strong heading into 2019, as the economy moves to a more sustainable pace this year, panelists on a Bloomberg Intelligence webinar said Jan. 17.

The webinar, The Issues That Will Move the REIT Market in 2019, featured Nareit Senior Vice President for Research and Economic Analysis Calvin Schnure, Steven Brown, senior portfolio manager at American Century Investment Management, and Cedrik Lachance, director of REIT research at Green Street Advisors.

Schnure pointed to ongoing economic and job growth, low inflation, and attractive financing rates for commercial real estate. At the same time, he noted that a “wild card” in the outlook is the increasing risk from the budget impasse and trade tensions.

Brown said he expects a more “defensive” year for commercial real estate in 2019 but added that bad news has already been priced into the market. He also expects REITs will outperform the broader market this year, after three years of underperforming the S&P 500 Index. Meanwhile, the discount to net asset value (NAV) at which REITs currently trade points to more take-private transactions, he added.

According to Lachance, private market commercial real estate prices look set for a modest fall. At the same time, REITs are “still in a fair range, but at the pricier end.”

Turning to property sectors, Lachance expects residential REITs to fare well in 2019, given a “fairly flat” homeownership rate. Brown agreed, saying REITs are in a “wonderful position,” as buyers remain priced out of the market.

Schnure pointed out that regional mall REITs look set for a good performance in 2019, reflecting a rebound in same-store net operating income (NOI) growth.

To listen to a replay of the webinar, click here.