Year-to-Date, FTSE/NAREIT All REIT Index Up 7.1%

REIT share prices came under pressure in October with concerns of rising interest rates bearing down on the market, according to analysts. However, REIT returns continued to lead the S&P 500 through the first 10 months of the year.

The total returns of the FTSE/NAREIT All REIT Index dropped 4.9 percent in October, while the S&P 500 index lost 1.8 percent.

For the year through Oct. 31, the total return of the FTSE/NAREIT All REIT Index was 7.1 percent, while the S&P 500 posted a total return of 5.9 percent. The yield on the 10-year Treasury note dropped 0.4 percent in the first 10 months of 2016.

“Interest rates have backed up. That’s been a big driver for the underperformance,” said Steve Manaker, analyst at Oppenheimer & Co.

David Rodgers, senior analyst at Robert W. Baird & Co., said that while views differ on whether interest rates are “the be all and end all for real estate, they do have a very short-term impact on REIT performance, especially leading up to any kind of rate change.”

Rodgers added that following a solid performance by REITs through mid-year, retrenching by generalist investors and repositioning by REIT-dedicated investors subsequently occurred.

Broadly speaking, “REIT earnings are fine,” according to Manaker.

“You’re seeing a bit of deceleration, but we would say deceleration from numbers that were unsustainable on the operating side,” Manaker said.

Almost all property sectors fell in October, with the exception of infrastructure REITs, where performance was flat. For the year to Oct. 31, total returns from infrastructure REITs were 18.3 percent.

While returns for industrial REITs dropped 3.3 percent in October, they outpaced the rest of the REIT market with total returns of 26.7 percent for the year through October.

Other top-performing sectors for the year to Oct. 31 included single-family residential REITs with total returns of 26.6 percent; data center REITs with total returns of 22.2 percent; and net lease REITs with total returns of 21.3 percent.