Quick Study: REIT Gains Underscore Favorable Conditions

In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, said REIT market gains in October provided some comfort to investors and showed that conditions are in place for continued growth.

The total returns of the FTSE/NAREIT All REIT Index rose 6.1 percent in October, while the S&P 500 Index gained 8.4 percent. The yield on the 10-year Treasury note was up 0.1 percent for the month. As of Oct. 30, REIT total returns were up 1.3 percent for the year, while the S&P 500 Index was up 2.7 percent.

“October was a really good month for REIT investors,” Case said. Although REIT returns were not as healthy as those posted by large non-REIT companies hit by volatility earlier in the year, Case noted that they exceeded those of non-REITs with a similar market capitalization or value focus.

“Investors got some comfort level in October that the conditions are there for continued growth in commercial real estate returns going forward,” Case noted.

One factor that really differentiates the real estate sector from the rest of the stock market is what’s happening to construction, Case observed.

“In October, we continued to see low levels of construction, less than the norm that was prevailing before the liquidity crisis. That sets the stage for continued growth in rents and occupancy levels,” Case said.

Meanwhile, despite overall weakness in non-residential investment data released in October, data related to real estate investment actually looked positive, according to Case. Growth in market fundamentals support current property valuations, according to Case.

Turning to specific property segments, Case highlighted returns made by REITs in the infrastructure, industrial and retail segments. Infrastructure REITs posted total returns of 12.8 percent in October, while returns from mall REITs rose 9.9 percent and returns from industrial REITs gained 9.3 percent.

Gains were seen across most of the real estate market, Case said, “and that fits with the real estate market supply-and-demand fundamentals, which continue to be in an imbalance that works for investors.”