Market Analysis & Research

The recovery in REIT earnings from declines early in the pandemic continued in the first quarter of 2021, according to data recently released in the Nareit T-Tracker®.

The growing use of target-date funds (TDFs) remains the dominant investment-related trend in the defined contribution and individual retirement account markets, and REITs continued to be a critical component of TDFs in 2020.

Residential REITs edged up 0.1%, but all other property sectors were in the red.

Real estate rents and values tend to increase when prices do, due in part to the fact that many leases are tied to inflation. This supports REIT dividend growth and provides a reliable stream of income even during inflationary periods.

The two biggest factors for the outlook for long-term interest rates (which have the most direct impact on commercial real estate markets) are economic growth and the likelihood that such growth will lift inflation higher.

April and early May capital markets activity was highlighted by the announcement of three large REIT mergers. So far in 2021, U.S. REITs have raised over $26 billion in IPOs and secondary debt and equity offerings.

REIT share prices dipped last week following a six week string of increases, as the FTSE Nareit All Equity REITs Index had a total return of -0.7%.

Multifamily markets rebounded in the first quarter with the second-highest quarterly demand growth on record, according to data recently released by CoStar.

The FTSE Nareit All Equity REITs Index posted a total return of 1.3%. Broader markets, in contrast, were flat-to-down.

The FTSE EPRA Nareit Global Real Estate Extended Index Series broadens property sector coverage to include additional securities beyond those currently eligible for the FTSE EPRA Nareit Global Real Estate Index Series including Cell Towers and Timber.

The flattening out of overall index, however, masks divergent trends among different sectors of the overall commercial real estate market.

The REITs’ stock market path through the recovery to date can be usefully described as three distinct periods.