WASHINGTON, DC-REITs, which have been among the bright spots in the equity market this year, took an abrupt tumble in Q3 with the Dow Jones All Equity REIT Index posting a negative 13.3% return. More amazingly, after steadily clocking in growth that bested the larger equity market, this past quarter REITs were soundly beaten by stock performance.
Year to date, REITs are still out performing general stocks, SNL Financial’s Keven Lindemann tells GlobeSt.com--but not by much. “It is nothing to write home about,” he says. “I would say for 2011, taking into account Q3, REITs are down 9% for the year, while the S&P 500 is down 10%. So it’s nothing to celebrate.”
It is important to consider the fact that REITs have been outperforming the larger equity markets in general, Brad Case, NAREIT’s senior vice president for research and industry information, tells GlobeSt.com. “Five years, ten years--they have outperformed,” Case says. “This may have been a lost decade for stocks but not for REITs.”
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Certainly there is a case to be made that Q3 was a simply a nightmare, not only for REITs but for all investments and the general economy. Fears about sovereign debt default in Europe are at center stage right now, along with a growing concern that there is going to be a double dip recession in the US and possibly globally. And of course, the US almost defaulted on its own debt this past August thanks to partisan blood-warfare in Congress.
Still, the surprising drop in REIT values leaves the industry wondering if these equities are heading for a long-term decline, instead of a reflection of the mass sell-off that the equity markets experienced during the quarter. Case says no, largely because they have not fully recovered from their sharp drop during the liquidity crisis. Lindemann also thinks REITs are still well positioned to attract investor capital--they have the added benefits of dividends--and will end up the year in a relatively healthy spot.
“What happens with the US REIT market over the next 12 to 18 months will be determined by what sort of broader economic improvement we see,” Lindemann says. “But they are positioned for long term growth.”
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
