After a strong performance in the first six months of the year, REIT stocks are "very well-positioned" for the second half of 2012, according to Brad Case, NAREIT senior vice president of research and industry information.
In a video interview with REIT.com, Case surveyed the first half and previewed what's in store for the REIT industry in the next six months. The FTSE NAREIT All REITs Total Returns Index was up 4.55 percent in the second quarter and 15.43 for the entire first half of 2012. Meanwhile, the S&P 500 fell 2.75 percent in the second quarter and grew 9.49 percent in the first six months.
"What has really been happening is that investors are more confident that the economic recovery, although it's slow, is continuing," Case said. "And that's the real key for investors in real estate and REITs in particular."
Case said REITs have positioned themselves to capitalize should the economic recovery continue to show that it has legs.
"It's really quite amazing how well REITs have been doing relative to the broad stock market," he said. He noted that REITs returns in the first half nearly doubled those of small cap value stocks.
Case pointed out that mortgage REITs' returns outpaced equity REITs in the first half. "That's something that maybe investors were waiting for, because mortgage REITs were so severely hit during the liquidity crisis," Case said.
Case speculated that growth in economic activity would be a catalyst for growth in demand for real estate across the board. Given the low levels of supply in the market, that should create favorable dynamics for property owners, according to Case.
"All property types stand to benefit from an increase in economic activity," he said. "At the same time, the severe restriction in supply is, again, something that applies to all parts of the real estate market."
Case also explained that REITs' access to capital gives them another advantage in the current market environment.
"That gives them the opportunity to take advantage of other investors in the real estate space that don't have the same access to the capital markets," Case said.
Looking ahead to the November election season, Case said investors are primarily looking for certainty regarding policy on economic growth and regulation.