REITs Thriving in Current Real Estate Environment

In the latest edition of Fundamentally Speaking, Calvin Schnure, NAREIT’s senior vice president for research and economic analysis, assessed the state of the REIT market at the mid-year point.

Economic news has been mixed so far this year, Schnure said, with overall gross domestic product data “fairly weak.”

However, “the core of the U.S. economy seems to be on track,” he added. Consumer spending picked up after a weak winter, rising 4.25 percent in the second quarter. Job growth has also rebounded since the winter and spring months, Schnure observed, with the past couple of months recording growth of more than 200,000 new jobs per month.

“That’s really solid job growth. With rising wages, this is really going to support the economy going forward,” Schnure said.

In turn, real estate markets have improved across most property sectors, Schnure said. Vacancy rates have been declining, and rent growth has been good, despite some deceleration in certain sectors.

As a case in point, Schnure highlighted the apartment sector, which saw rapid rent growth last year.  Since then, the sector has decelerated, Schnure said. He attributed the decline to increased supply, particularly of luxury apartments. He also noted that 2015 saw rent growth that was as high as 7 percent.

“It’s natural to have some deceleration,” he said.

Meanwhile, the retail sector continues to face pressure from the growth of e-commerce, but construction activity remains low, Schnure said. At the same time, data center and self-storage REITs are “really thriving” on the growth of the new economy, he added.

“Overall, it’s a quite favorable outlook for real estate in general,” according to Schnure, who stressed that demand is still ahead of supply across all property sectors.

“We should have continuing tightening in the markets, and rising occupancy rates that will support rent growth,” he said. “REITs are continuing to thrive in this real estate environment.”