Market Commentary Blog

One of the most critical issues for real estate investors in the year ahead is the outlook for cap rates and property prices, especially with Federal Reserve policy in the spotlights. In addition to the future path for their target for short-term interest rates, Fed officials have also been discussing policy options concerning their securities holdings.

REITs have delivered a long-term total return to investors that generally matches and often beats broad market aggregates.

Commercial property prices edged higher in 2018, increasing 1.8 percent over one year earlier.

January was the strongest monthly performance for REITs since October 2011.

Commercial real estate markets maintained momentum through the end of 2018, as net absorption continued at a high level across major property types.

In terms of information about the economy, the retail sales report for December and business inventories report for November were early casualties, as these releases planned for Jan 16^th were delayed due to the Census Bureau being shuttered by the lack of funding.

REITs have generally protected against stock market declines, with downside beta typically well below one; moreover, their upside beta has usually been higher, giving investors a chance to “have it both ways.”

December 2018 was bitter for investors. Total returns in the broad REIT market were -7.73 percent—but that was good news compared with large-cap stocks (-9.03 percent according to the S&P 500), small-cap stocks (-11.88 percent for the Russell 2000) and especially small-cap value stocks (-12.09 percent).

The government appears to be settling in for an extended partial shutdown, at least as of January 2. If the shutdown persists beyond the next few days, however, the closure of several key agencies that produce statistics on the U.S. economy could begin to have an impact on financial markets, including REITs.

Investors with an interest in ESG and sustainability have a new tool, the FTSE EPRA Nareit Green Real Estate Index Series that allows investors to integrate ESG considerations in their portfolios of listed real estate.

REIT leverage ratios declined on both a book-value and market-value basis in the third quarter, as prudent balance sheet management reduced the sector’s exposure to interest rates.

Two of the oldest rules on Wall Street are “Buy low, sell high,” and “Don’t fight the Fed.” While it can be difficult if not impossible to pick the highs and lows in the stock market, it is not that hard to read the Fed’s signals about future policy.