WASHINGTON, DC—NAREIT reported US REIT returns are continuing to outpace the S&P 500 after delivering a stellar performance in February. We will get to these stats in a moment, while we note another theme that also emerged from these numbers: the resiliency, or rather the return of, the multifamily sector.

Last year the asset class was clearly on the outs with investors due to fears of oversupply and a slackening of demand. That hasn’t happened, and NAREIT VP of research Calvin Schnure has a simple reason why: demand for multifamily product has been grossly underestimated by the market. “The fundamentals behind this sector are surprisingly robust,” he tells GlobeSt.com.

First, though, a look at REITs’ overall performance for the month.

On a total return basis, the FTSE NAREIT All REITs Index rose 4.69% in February, the FTSE NAREIT All Equity REITs Index increased 4.67%, and the FTSE NAREIT Mortgage REITs Index was up 4.30%. The S&P 500 was up 4.57%.

For the first two months of the year, the FTSE NAREIT All REITs Index was up 8.22%, the FTSE NAREIT All Equity REITs Index was up 8.13%, and the FTSE NAREIT Mortgage REITs Index was up 10.52%, compared to the S&P 500′s gain of 0.96%.

The standout sectors are free-standing retail, followed by self-storage and then apartments. These sectors have delivered, year-to-date, returns of 16.37%, 12.94% and 12.23%.

Q4 earnings for multifamily REITs were lackluster and one reason for the turnaround, Schnure believes, is that the industry is now confident that supply is not going to outstrip demand.

“We are seeing more signs that the rental market will remain strong even as single family housing recovers and all the new supply in the pipeline starts to deliver.”

“There is a demographic need for rental housing that is continuing to hold this sector together.” Schnure identified this need two years ago, calling it shadow demand for apartments. This referred to the younger adults still rooming with friends or bunking with parents, not ready to find their own place until they landed a job. Now that is starting to happen-but only just, Schnure says. “The ultimate magnitude of this demand is massive – about four million, and it will be enough to fuel a couple of years worth of growth. It is only just beginning to emerge.”