By Ermengarde Jabir , Ph . D .
THE SHIFTING REIT LANDSCAPE
REITs are very sensitive to business cycles , typically outperforming the general market in good times and underperforming in the presence of external macroeconomic shocks . Weakened demand across all sectors during the first quarter of 2020 persisted for office , retail , and seniors housing / health care — which face uncertainty over the next 12 to 18 months from shifting consumer preferences — placing strain on capital market and leasing activities .
REIT demand recovery is largely impacted by the overall health of the economy , which has been mixed during the first half of 2021 . Certain metrics , such as Transportation Security Administration throughput data , show consistently increasing travel activity in the first six months of the year which indicates increased economic activity when compared to the same time last year ; the levels , however , remain much lower than their 2019 peak . Employment , a more traditional economic indicator , is showing mixed results . Although not as sluggish as April ’ s total nonfarm payroll employment number ( 278,000 ), May ’ s total of 559,000 still fell short of expectation . Still , cooperative monetary policy and low interest rates are likely to buoy REIT valuations in the near term , even for the stragglers . The data shows recovery with total REIT returns across all sectors nearing or surpassing their 2019 year-end peaks at the end of May 2021 .
Due to structural changes in spatial demand caused by COVID-19 , some slices of the REIT universe have seen their fortunes rise — namely REITs invested in self-storage and industrial properties , as well as properties that host tech infrastructure such as data centers . The boom in the industrial sector is driven largely by both the organic growth in e-commerce over the past several years , which is expected to continue , and the pandemic-related spike in e-commerce due to stay-at-home orders in many parts of the U . S . All industrial subsectors are expected to experience stable , positive rent growth in the coming years . The multifamily sector is also experiencing growth in certain geographies that have benefited from pandemic-induced migration ( for example , Texas and areas of the South ). The multifamily and industrial sectors are expected to see robust rent growth in the coming years .
Data centers , which have been vital in supporting the remote workforce during the pandemic , have emerged as winners in the
REIT Total Returns by Sector
5,000
Industrial Apartment Hotels Office Health Care Retail Self-Storage
4,000
Return Index
3,000
2,000
1,000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source : Moody ’ s Analytics
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE SUMMER 2021