REIT performance during the second quarter of 2023, and broader trends across the industry, were the focus of a July 11 webinar hosted by Institutional Real Estate, Inc. (IREI) and Nareit. John Worth, executive vice president of research & investor outreach at Nareit, and Laurel Durkay, head of global listed real assets at Morgan Stanley Investment Management (MSIS), joined Mike Consul, senior editor of IREI’s Real Asset Adviser magazine, for the discussion.
Returns for the FTSE Nareit US Real Estate Index Series were up 1.2% in the second quarter, Worth noted, marking the third consecutive quarterly gain. This followed a cumulative decline of about 24% for the first three quarters of 2022. The second quarter was characterized by uneven monthly results, although overall returns were up 3% on a year-to-date basis by the end of the second quarter, he added.
REITs also raised $1.5 billion in the second quarter. Worth noted that a bounce back in capital raising has occurred so far this year, particularly for unsecured debt. “Capital markets are open for REITs,” he said.
Meanwhile, Durkay highlighted the large differential in REIT sector performance evident in both the second quarter and the year-to-date numbers, with the top performing sector up almost 20% and the lowest performing sector down by a similar amount. “The actual sectoral composition and differentiation is really important when thinking about the underlying performance of real estate securities,” she said.
Some key takeaways from the webinar included:
- Data centers were the best performing REIT sector in the second quarter and on a year-to-date basis.
- Durkay pointed to initial signs of “explosive growth” in the over-80 age cohort, which is likely to fuel demand in the senior housing segment.
- AI is creating a “new wave of demand” for the data center sector.
- The introduction of a stand-alone gaming REIT sector “shows that there’s always room for innovation” in real estate, Worth said.
- So far, the most tangible uses of PropTech have been in the multifamily sector, but going forward, PropTech will be used across all types of real estate, Durkay said.
- Worth noted that investors are starting to differentiate between high quality office and the rest of the office sector. Durkay added that while office will continue to face secular challenges, it will still be a “necessary part of any employment situation.”
- Grocery-anchored shopping centers are seeing interest from retailers who traditionally wouldn’t have considered them as a location option, Worth said. Durkay noted that open air centers are seeing significant interest, but enclosed malls “shouldn’t be written off completely.”
- The importance of quality malls and strong management teams is analogous to trends playing out in the office sector, Worth said.
- Private real estate is just starting to price in higher interest rates in terms of appraisal valuations, Worth noted. The valuation gap between public and private real estate is starting to close, and how those two markets come together, and what opportunities that creates, is something to watch, he said.
The next webinar will be on October 3, and will analyze third quarter performance of the FTSE Nareit U.S. Real Estate Indexes. Sign up to receive updates on Nareit webinars, events, and research.