REIT Underlying Fundamentals Point to Upside Potential in 2018

Calvin Schnure, Nareit senior vice president for research and economic analysis, was a guest on the latest edition of Nareit’s REIT Report podcast. Calvin highlighted some of the main issues raised in the Urban Land Institute’s (ULI) spring real estate economic forecast, which he contributed to.

The ULI consensus expects the overall economy to continue expanding over the next few years, with the outlook for commercial real estate favorable as well.

According to Schnure, the main risks are from construction and interest rates. While these don’t pose any current threats, “they’re worth watching.” He also noted the absence of overheating in the form of “frothy prices” or accelerating inflation, while debt growth has been moderate.

Most real estate sectors have fairly high occupancy levels and rent growth is “good enough,” Schnure said.

Turning to interest rates, Schnure stressed that even with the recent increases, they are still “very low by any standard” and are good rates for financing properties. The key point to watch is the pace of rate increases, he stressed.

Meanwhile, the ULI forecast expects total REIT returns of 4.4 to 6.5 percent over the next few years.

“If we see a bit more certainty about the extent and pace of interest rate increases and we still see REITs performing this well in their operations, there’s a lot more potential upside for the REIT sector in the year ahead,” Schnure said.