Market Analysis & Research

REITs have made important changes over the past decade in their overall leverage ratios, as well as the composition and structure of their debt.

Funds from operations of all Equity REITs increased to $15.9 billion in the first quarter, according to the Nareit T-Tracker. Occupancy rates remain near the record highs set last year.

In 2003, the share of TDFs with REIT exposure was only 50%, while in 2018, 97% of them invest in REITs. In fact, 60% of TDFs have a dedicated REIT sleeve within their asset allocation.

Gross domestic product surpassed expectations in the first quarter, and strong job growth in March and April provide a favorable backdrop for demand for leased commercial space.

While correlations between stock markets in the United States and China, and the rest of Asia and Europe have risen as trade disputes have heated up, REITs’ correlations with overseas markets have moved lower.

Rising house prices have raised concerns about whether another speculative bubble is brewing. In today’s housing markets, however, it is a scarcity of housing supply that is pushing up prices.

Real estate markets softened in the first quarter, with the demand for leased space slowing for most major property types. Demand did not fall but the weakness may reflect a cautious environment during the winter months.

A generation ago, most commercial real estate consisted of a building and four walls that provided space and services for tenants. Today, however, a growing share of real estate supports the high-tech sector.

Do we need to worry that equity REITs are carrying too much debt?

The relationship between REIT returns and long-term interest rates has turned positive again.

REIT earnings slowed a bit in late 2018, according to the Nareit T-Tracker®, which showed funds from operations (FFO) of all listed equity REITs of $15.9 billion.

The outlook for REITs and commercial real estate remains favorable, despite some mixed macroeconomic news in the early months of this year.