Quick Study: REIT Market Starts Year Off Right

In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, highlighted a “very strong month for REIT investors” to start 2015.

The FTSE NAREIT All REITs Index climbed 5.6 percent in the first month of the year, while the S&P 500 fell 3 percent during the same period. Case noted those returns were in line with longer-term trends.

“If you look at longer term, you see that REITs typically outperform the broad stock market,” Case said. He pointed out that in the last 10 years, REIT investors have seen total returns of 9.9 percent per year. That contrasts with large cap stocks, which were up 7.6 percent in that same period, he said.

Case said most of the REIT market had a strong month. The sector leaders were self-storage REITs, which gained 9.5 percent in January, and health care REITs, which were up approximately 9.3 percent.

Case addressed concerns that the REIT stocks may be approaching a point at which they’re overvalued. That’s a tough case to make, according to Case.

“I don’t think it’s very easy to support a prediction of poor performance going forward,” he said. “We’ve seen very strong news about the macroeconomic situation, and that means that demand for commercial properties—of essentially all types—is likely to increase going forward.”

Case stressed that the supply side of the real estate market generally drives its cycles.

“When we look at construction in pretty much every property type in pretty much every part of the country, we’re still below even normal levels of new construction,” he observed. “So REIT investors don’t really have any reason to be concerned about oversupply going forward, and given the strength on the demand side, REIT investors can still expect to see an imbalance that works to their benefit.”