Three-day Rally Reduces Recent REIT Losses

The stock market got a bit of relief last week as forceful policy measures prompted a three-day rally, trimming some of the recent losses. Market confidence was bolstered by the double-barreled policy measures that were introduced. Early in the week, the Federal Reserve pledged to purchase Treasury and agency securities “in the amounts needed to support smooth market functioning”—essentially an unlimited backstop for financial markets—as well as reviving and expanding lending facilities from the 2008 financial crisis to reinforce critical points in the financial system. Later in the week came the $2 trillion fiscal stimulus program that will provide cash to households and businesses.

Every REIT property sector posted double-digit gains last week. Some of the sectors that had recorded larger declines in the prior two weeks were up 20% or more. The FTSE Nareit All REITs index had a total return of 16.45%, compared to 10.64% for the Russell 1000.

The exceptional volatility in stock markets over the past month has unnerved some investors. This volatility is not the cause of issues in the economy and financial markets, of course, but reflects the high degree of uncertainty about the economic and financial impact of the virus.

Total returns for the year-to-date still show large losses despite the gains last week. The range of returns across REIT property sectors reflects the different exposures that each may have to the dislocations caused by the virus and the social distancing measures aimed at slowing its spread.

Indeed, two sectors stand out in terms of year-to-date returns. Infrastructure, which owns many of the cell towers used for transmitting communications and data, were down just 2.73% for the year, and Data Centers, whose high-tech buildings hold the servers that host the internet, is in positive territory with a 3.49% total return. This diversity of experiences across property types underscores the importance of holding a diversified portfolio and how the full range of REIT property types can enhance that diversification.

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The Market Commentary blog on presents analysis of the macro- and micro-economic fundamentals impacting the REIT and commercial real estate industry. The Nareit economics team offers their commentary on the state of the market, the outlook for commercial real estate and breaking macroeconomic news. The opinions set forth here are solely those of its author(s), and do not necessarily reflect the views of the Nareit or its membership. For more, see our Terms of Use.