Calvin Schnure

The economic forces that affect the demand for domestic U.S. commercial real estate differ from those affecting global corporations, and stock returns reflect these differences.

One of the more common ways to describe the outlook for REITs is to pick which inning of a ballgame corresponds to today’s REIT market. For the past several years, most observers have said the market was in the seventh or eighth inning.

The economy is returning to its trend growth after getting a boost from the 2017 tax cuts.

For all the hand-wringing six months ago, the first half of the year turned out pretty well for commercial real estate markets and REITs.

Nareit economist Calvin Schnure reviews the latest data on supply and demand conditions, and vacancy rates and rent growth.

REITs have extended overall debt maturities and reduced leverage over the past decade, and access the commercial paper market from a position of balance sheet strength.   

The occupancy rate at apartment REITs has continued to move to new record highs during this building boom.

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.

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.

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