With a total footprint of nearly three million U.S. jobs, REITs are a vital part of their communities and the U.S. economy at large, according to an economic outlook panel speaking at Nareit’s REITworld: 2021 Annual Conference.
John Worth, executive vice president, research and investor outreach at Nareit, moderated the panel. Speakers included Brandon Pizzola, senior manager quantitative economics and statistics at Ernst & Young LLP; Nicole Funari, vice president, research at Nareit; and Calvin Schnure, senior vice president, research and economic analysis at Nareit. The panel looked at the outlook for the macroeconomy, inflation, and interest rates, market conditions, and reopening opportunities and risks.
As the senior author of a new report on the economic contributions of REITs in 2020 in the U.S., a collaboration between Nareit and EY, Pizzola said the direct and indirect impact of REITs adds up to roughly three million U.S. Jobs, and that all of that income is generally put back into the economy through spending at grocery stores, movie theaters, and other consumption.
Looking at REIT sectoral performance over the past 20 months, Funari noted that property sectors began to differentiate themselves performance-wise as months passed after the start of the pandemic.
“Those that are most affected by social distancing and closures [were] having a hard time recovering from that initial shock, while some of the sectors—notably data centers and industrial infrastructure—start to see a surge as people move from brick-and-mortar retail more toward e-commerce,” Funari said.
Worth added that the resiliency of REITs is one of the biggest takeaways from the COVID era.
“REITs as a whole came into this crisis looking very differently than they did coming into the financial crisis: Much lower leverage, much more access to cash and liquidity both on the balance sheet and in the form of lines of credit, and much better operating performance,” Worth said.
Turning to the macroeconomy, Schnure said that fundamentals are very conducive to GDP growth and to commercial real estate, adding that the most critical areas for examination are the job market, non-financial corporations, industry, the banking system, and the household sector. Schnure added that inflation numbers are not broadly spread across all categories.
“What we are seeing is some more in housing, and that is probably going to lift the inflation rate,” Schnure said. “But we’re not seeing the type of ramp-up we saw in past decades.”
Pizzola added that EY has a positive outlook on the macroeconomy moving forward, as 81% of jobs lost due to COVID have now been recovered, and with 5.5% growth is expected in 2021 to the U.S. economy.
“Consumption is above pre-COVID levels, savings is back to pre-COVID levels, and we expect this high growth to continue with 4-4.5% growth in 2022,” Pizzola said.