REITs Lose Ground in November

REITs lost ground in November, as uncertainty over the timing of interest rate changes and concerns about economic data weighed on the sector.

The total returns of the FTSE/NAREIT All REIT Index fell 0.3 percent in November, while the S&P 500 Index gained 0.3 percent. The yield on the 10-year Treasury note was up 0.1 percent for the month.

Through the end of November, REIT total returns for 2015 were up 1.1 percent, while the S&P 500 Index was up 3.0 percent.

David Rodgers, senior analyst at Robert W. Baird & Co., said that although 2015 has been a “fairly uninspiring” year for REITs, fundamentals remain solid heading into 2016. REITs continue to feel the impact of uncertainty over interest rate changes, according to Rodgers.

Paul Adornato, managing director at BMO Capital Markets, explained that REITs typically underperform in anticipation of an interest rate hike. However, REITs typically outperform once the Federal Reserve starts its rate increase cycle, he added.

“Despite their lackluster performance, REITs in just about all property types have very good fundamentals:  reasonable demand, limited new supply and a favorable operating environment,” Adornato said.

Meanwhile, concerns over domestic economic data and economic trends in Europe and Asia are putting pressure on the market as a whole, Rodgers said.

Adornato predicted that 2015 would likely end on a downbeat note for REITs, as the market sentiment that has dominated the year tends to become exacerbated at year-end. Looking to 2016, however, Adornato expressed optimism that the current weariness in anticipation of Fed action will be replaced by a more upbeat mood. At the same time, the elevation of real estate to an 11th headline sector of the Global Industry Classification Standard (GICS) will also add momentum to the market, he said.

Among the sectors bucking the overall trend in November, timber REITs gained 13.5 percent, while the self-storage sector gained 4.5 percent and the apartment sector advanced 3.4 percent.