Changes to GIC Touch on Retail, REITs

S&P Dow Jones Indices and MSCI Inc. announced the results of their annual review of the Global Industry Classification Standard structure. Some of the expected changes will affect commercial real estate investors.

“The annual GICS methodology review is intended to ensure that the GICS structure continues to appropriately represent the global equity markets and, thereby, enable asset owners, asset managers and investment research specialists to make consistent global comparisons by industry,” the companies said. “The GICS structure revision is the result of a consultation with market participants.”

GICS changes will occur after close of business on March 17, 2023. “A select list of large market capitalization companies affected by the changes will be announced no later than June 30, 2022,” the release said. “The full list of companies affected by these changes will be made available to clients no later than December 15, 2022. MSCI will consult with clients regarding implementation in their indexes”

Generally, GICS revisions result in passive institutional investors reallocating investment to meet the new structure, which in turn could mean more or less capital for a particular sector. 

One of the two major areas in CRE is retail. “The retail landscape has evolved over the years as retailers are opting to pursue an omni-channel approach to sell their products rather than sticking with mainly brick-and-mortar retail or purely online channels,” the companies write. “The demarcation between General Merchandise Stores and Department Stores has diminished as well, since both formats are comprised of retail spaces primarily selling consumer discretionary goods. Retailers that are generating a majority of revenue or earnings from consumable staple items such as food, household, and personal care products warrant a consolidation under the Consumer Staples Sector.”

The change, which was positively received on review, will mean the discontinuation of “Internet & Direct Marketing Retail,” with companies merged into classifications that cover the types of goods sold. “General Merchandise Stores and Department Stores” would move into a new sub-industry called “Broadline Retail.” Consumable merchandise sellers move into the Consumer Staples Sector. And, importantly, in a number of retail classifications, the word “Stores” will be replaced with “Retail.”

As the line between online and offline retail becomes smoother, the question of how to classify property—is it a store or an e-commercial industrial space—would seem pertinent.

The second major area is classifications of REITs. The point the report makes is that a REIT usually focuses on a distinct type of property, with only a small percentage investing in a variety of property types.

In this case, the interest is in greater specificity. Expect to see Residential REITs become two sub-industries and Specialized REITs break out into five sub-industries. There will also be a new Real Estate Management & Development Industry Group and Industry.