Recovering Economy Boosts REIT Returns in November

The REIT market enjoyed a strong October as the FTSE NAREIT All REIT Total Returns Index climbed 13.3 percent for the month. REITs' performance bested the broader indexes, with the S&P 500 up 10.9 percent and the Dow Jones Industrials gaining 9.5 percent.

In a video interview with, Brad Case, NAREIT's senior vice president of research and industry information, said REITs benefited from a growing sentiment among investors that the economy will continue to grow and that another recession will be avoided.

"Investors were concerned in August and September that perhaps the uncertainty over in Europe might spill over into the U.S. economy and bring our current recovery to a halt," Case said. "I think those concerns have been allayed."

The broad stock had its best month since October 2002. However, Case noted that while the average returns in the stock market have been 6 percent per year since then, REIT returns have averaged 11.5 percent annually during that same period.

"In fact, if you look at essentially any long-term time period, the REIT market has really always outperformed the broad stock market over long investment horizons," Case said.

The lodging sector was the greatest beneficiary of the REIT upswing, gaining 26 percent in October. Case attributed the turnaround to the brightening economic picture, noting that the lodging sector has been held back by investors' fears of a double-dip recession more so than others.

"But there really was no part of the REIT industry that didn't have a strong October," Case said. "That really goes to the fact that the story for the REIT industry is a story about economic expansion affecting the entire commercial real estate market."

In terms of the mixed messages being delivered about the state of the broader economy, Case said the measures that tend to be the best indicators of the health of the economy, such as private sector job growth and consumer expenditures, are positive.

"Those and other indicators suggest that consumers are more confident that the economic recovery will continue and, more importantly, perhaps businesses are more confident in making their hiring decisions," Case said. "In general, I'd say the pieces of information that predict a stronger economy are probably more important than the conflicting pieces of information that reveal uncertainty. I don't want to suggest that it's a lock that the economic recovery will continue, but I think the evidence is in favor of that."