02/01/2021 | by
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Fourth quarter GDP data released by the Bureau of Economic Analysis underscores the continued pressure facing the services sector, although a surge in spending is likely once vaccines bring the pandemic under control, Nareit Senior Economist Calvin Schnure says.

Speaking on the REIT Report, Schnure noted that GDP growth in the fourth quarter of 2020 slowed to a 4.0% annual rate after a record 33% in the third quarter.

Some slowing was inevitable, Schnure said. He noted that a large divergence remains in place between the services and goods sectors, with the decline in services spending accounting for almost all of the decline in fourth quarter GDP compared to before the pandemic.

Current GDP trends are at odds with those seen in previous recessions, according to Schnure, where services spending has typically stayed robust. The current recession, however, has seen a strong showing for goods spending, as people have spent in order to make their homes more comfortable.

Looking ahead, Schnure said the solid pace of goods purchases is unlikely to hold. Instead, he expects pent-up demand to fuel a surge in services spending.

Meanwhile, Schnure noted that REIT stocks were little changed on balance last week, with a total return of -0.7% on the FTSE Nareit All Equity REITs index, versus a decline of 3.3% on the S&P 500. There was considerable turmoil related to short selling in GameStop and several other companies, including REITs in the regional mall sector.

“For the most part, this short-term volatility has little effect on long-term investors,” Schnure said, noting that several REIT property sectors, including data centers and industrial, actually made gains last week.

“This type of volatility will get a lot of headlines while it’s happening, but these effects are going to fade as we get further into the year. The longer term outlook, with the recovery in the economy as the pandemic fades, is really quite favorable for REITs and listed real estate,” Schnure said.