Believe it! The FTSE NAREIT ALL REIT Index returned 6.05%, outperforming the NASDAQ (+5.53). So far this year the US REIT sector has experienced steady, healthy growth. Analysts’ predictions, looking into 2013, range from a firm thumbs-up to cautiously optimistic.
To kick off, there seems to be an increased demand for warehousing which is being attributed to the US general economic recovery. Industrial REITs are benefiting as a result. Year-to-date, the sector posted 8.90% return. Many believe that Prologis (PLD), whose $16.75 billion market capitalization represents almost 75% of the US industrial REIT sector, has driven the sector’s expansion.
In January, Prologis announced plans to set up a REIT in Japan through Nippon Prologis. PLD has also announced an agreement with Amazon.com to build a more than one million square foot distribution centre in Tracy, California!
Lodging REITs are also performing well in the new year, most probably based on the anticipated economic strengthening in 2013. Year-to-date through February 15th, the lodging sector returned 9.74%.
As the U.S. housing markets strengthen, the demand for lumber is growing. In December, housing started climbing to an annual rate of 954,000, the highest rate in more than four years. (In the US most houses are made of timber.) The result sees the timber REIT sector growing by (8.89%).
Bucking the trend slightly is retail. Despite an improving economy, concerns remain about growth in the retail sector. The overall return for retail REITs so far in 2013 is 5.59%. Market fundamentals have benefitted from the lack of new construction (of retail), but retailers are cautious about expanding. Retail sales growth in early 2013 is positive.
On the other hand Office REITS are up (5.59%) – looking steady. Office market fundamentals in the large coastal markets are good, but office returns have been moderated by many markets that have not yet recovered.
Returns for healthcare (6.42%) REITs are solid. Many believe that the healthcare sector received a boost from Obama’s November victory and the early stage implementation of Obamacare, with increased demand for health services.
Of all the REIT subsectors, mortgage REITs are among the strongest, with a return of 11.44% year-to-date. Coming into the New Year, Annaly Capital Management (NLY), a residential financing REIT, announced plans to merge with CREXUS (CXS), a commercial mortgage REIT in late January.
” The real estate sector is currently benefiting from a number of tailwinds that include the general search for higher yield (REITs pay dividends) and lower volatility, better data emerging from key markets and the U.S. Federal Reserve’s continued focus on the mortgage and housing markets, EPFR Global said in a press release on Friday,” Kenneth Rapoza wrote for Forbes
The positive effects of low interest rates for mortgage REITs continue to outweigh the negative implications of mortgage prepayments that drew the sector down in 2012.
So it’s clear that Lodging and Industrial REITs are benefitting for the US economic recovery. Retail and apartment fundamentals are good, though a little uncertain. Housing market recovery is fuelling growth among timber REITs. Due to their strong dividend pay-out and improving market fundamentals investors continue to favour REITs.