Quick Study: REIT Gains in October Continue Upward Historical Trend

In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, noted that REITs continued to outperform the broader stock market during October with solid gains across most property types.

“It was another very strong month,” Case said. The FTSE NAREIT All REITs Index had a total return of 8.7 percent in October. The S&P 500 Index gained 2.4 percent for the month. Looking at year-to-date data, Case pointed out that while the S&P 500 has gained about 11 percent, REIT returns are close to 23 percent.

Taking a longer perspective, Case observed that average returns for REIT investors during the last 40 years have averaged nearly 14 percent: “REIT investors have benefitted for a very long time from their exposure to real estate through the listed REIT space.”

Solid gains were seen across the market in October. Health care and self-storage REITs each posted gains of more than 12 percent in October, Case noted, while the industrial sector gained close to 12 percent returns. Equity REITs were nearly 10 percent higher on average during October, and mortgage REIT returns increased by more than 5 percent, Case said.

The residential sector continued to make advances in October, with returns of greater than 9 percent. Case attributed the increase to low levels of new supply and rising demand from individuals who are finally beginning to look for rental housing.

Case explained that the main factor driving returns in the REIT market and broader stock market is the recovery in macroeconomic conditions. However, what’s also helping the REIT market in particular is the pace of new construction, he added.

“In every property type nationwide, you’re seeing new construction that is way below normal levels,” Case noted. The low level of new construction combined with more robust demand triggered by the economic recovery is likely to continue to boost REITs’ financial performance going forward, according to Case.