03/10/2010 | By Allen Kenney
REITs are leading commercial property markets worldwide as they emerge from the global economic slowdown, according to an analysis from Ernst & Young (E&Y).
E&Y's analysts concluded that REITs had passed the "stress test" placed on the REIT model during the financial crisis. They noted that as the global economic picture turned increasingly grim in 2008, REITs ran ahead of other asset classes on the way down. However, as the crisis has subsided, REITs are leading on the way back up.
"Our analysis shows that during the recent global downturn, REITs did what they were intended to do: give investors—albeit at a price—an opportunity to quickly adjust their exposure to real estate by selling REIT stocks. Now, REITs are providing investors with a way to capture the market rebound by adding real estate stocks back into their portfolios," said Howard Roth, E&Y's global leader of the real estate sector.
The report warned that mergers and acquisitions probably won't reach the heights once expected, as stronger companies grow wary of taking on the problems of distressed firms. IPOs, however, are more likely to proliferate as equity markets firm up.
The E&Y analysts called attention to the possibility that some international governments may begin exploring ways to offer REITs greater capital flexibility to deal with tough economic conditions. They attributed some companies' struggles to the laws requiring them to pay out the majority of earnings to shareholders in dividends.