WASHINGTON, DC-US REITs ended the year with significant gains--as well as outpacing the general equity markets. The FTSE NAREIT All Equity REITs Index delivered a total return of 27.95% in 2010 and the FTSE NAREIT All REITs Index gained 27.58%. This compares to the 15.06% gain for the S&P 500. By year’s end, US REITs had an equity cap increase of 44% to $389 billion.
In particular, driving the growth were two sectors posting high double-digit returns: apartments, which rose 47%, and lodging, up 42.7%. Commercial mortgage financing was close behind at 41.9%. Other sectors also delivered robust returns. Retail REITs were up 33.41% for the year; industrial REITs were up 18.89% and office REITs were up 18.41%.
With such gains it is easy to understand why some critics see a bubble--or at least hard crash--coming for this asset class, said Brad Case, NAREIT vice president of research and industry information, in a video clip posted to the association’s website. “The reason that some people wonder whether the REIT rally still has legs is that it's just inconceivable that returns could average more than 20% per year,” he said.
Case went on to point out that REIT returns during the last two bull markets averaged more than 20% annually. “Not only that but you have to keep in mind that the depth of this downturn for REITs was much more severe than historically what we've seen before,” he said. “The recovery is going to be much stronger.”
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