In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, offered an analysis of the REIT market’s performance in August.
The FTSE/NAREIT All REIT Index saw its total returns drop 6.2 percent for the month. That trailed the broader market, with the S&P 500 down 2.9 percent in August.
Equity REITs were down approximately 7 percent in August, while mortgage REITs fell roughly 3.5 percent.
Case called August a “tough month” for REIT investors. He pointed out that although REIT investors haven’t been missing out on significant gains in the stock market, REITs have still underperformed throughout the summer.
“The market has been having a tough time, and REIT investors have been having a little bit tougher time,” Case said.
The infrastructure and self-storage sectors had the best performances in August. Meanwhile, apartment REITs were the hardest hit.
“Investors just don’t have a good sense for how strong the demand is in rental housing,” Case said. “That strong demand for rental housing is going to continue.”
Case also noted that mortgage REITs had relatively smaller losses compared with the rest of the REIT industry.
Despite the down summer, Case said investors should maintain their faith in REITs.
“If you look at how REITs have been performing since May 21, that’s really about increases in interest rates over that period and concerns that interest rates would go up higher as the economy strengths,” he said. “But if we look historically, we know that REITs don’t do badly when interest rates go up, and that’s because interest rates tend to go up when the economy is strengthening. That strengthens the demand for commercial real estate and the earnings from owning commercial real estate. REIT investors generally do well when the economy is strengthening, and that is going to continue. And they do well when interest rates go up, because that goes along with a strengthening economy. That’s the real story that investors are going to see over the next several months.”
Historically, REITs tend to outperform other investments in the month of September, according to Case.