REITs lost ground in September, as a combination of concerns about interest rate movements, property valuations and new supply appeared to weigh on investors.
The total return of the FTSE/NAREIT All REIT Index dropped 1.4 percent in September, while the S&P 500 index added 0.02 percent.
For the year through Sept. 30, the total return of the FTSE/NAREIT All REIT Index was 12.6 percent, while the S&P 500 posted a total return of 7.8 percent. The yield on the 10-year Treasury note dropped 0.7 percent in the first nine months of 2016.
“The long-term returns for real estate and REITs speak for themselves, and that’s part of the reason that the asset class has grown up to the point where it’s broken out into its own sector,” said Michael Lewis, director of REIT equity research at SunTrust Robinson Humphrey.
Lewis added that the factors currently weighing on the market do not give him undue cause for concern.
“Valuations are probably on the higher end of where they’ve been historically, but I don’t think they are unrealistic or wildly high,” he said. Lewis added that he is also not convinced that long-term interest rates, which are more important to REITs than short-term rates, are going to move very much.
Meanwhile, much of the new supply of space is based on catching up to demand, he added: “Occupancies at most property types are starting off very high, so at least we’re coming into this wave of supply from a position of strength.”
Turning to individual market segments, net lease retail REITs had the best performance in September, with returns of 1.9 percent.
Net lease retail REITs also had the best performance year-to-date, posting returns of 34.5 percent for the year to Sept. 30. Returns for industrial REITs totaled 31.1 percent in the same nine-month period. Single-family home REITs saw returns of 29.1 percent in the year up to Sept.30, while data center REITs recorded returns of 25.4 percent.