REIT Bull Market Still Alive, Case Says

In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, rebuffed the suggestion that REITs are nearing the end of their market cycle.

“I haven’t seen anyone make an argument that is actually well reasoned and based on empirical data” indicating that the REIT bull market is drawing to a close, Case said. He pointed out that construction activity in the United States remains below average. “A real estate market typically reaches its end when construction is significantly higher than average,” he said.

Additionally, the spread between dividend yields of Equity REITs and the yields of U.S. Treasury securities were “abnormally high” at the end of September, according to Case. That’s a leading indicator of outperformance for REITs, he explained.

“That, historically, has provided a very good predictor of REIT performance over the next several years,” he said.

The total return of the FTSE/NAREIT All REIT Index dropped 1.4 percent in September, while the S&P 500 index added 0.02 percent.

For the year through Sept. 30, the total return of the FTSE/NAREIT All REIT Index was 12.6 percent, while the S&P 500 posted a total return of 7.8 percent. The yield on the 10-year Treasury note dropped 0.7 percent in the first nine months of 2016.

Case noted that free-standing retail REITs and infrastructure REITs stand out as two of the top-performing sectors so far this year.