REITs outperformed broader markets by nearly 1.3% in June, as the Federal Reserve hiked interest rates by 75 basis points and signaled a more aggressive approach to fighting inflation in the coming months. In June, the FTSE Nareit All Equity REITs index posted a total return of -7.1% while the Equity REITs index was down 7.4%. The Russell 1000 and the Dow Jones U.S. Total Stock Market both ended the month with a total return of -8.4%.
Equity markets continue to battle the headwinds of tightening monetary policy and inflationary pressures driven by food and energy prices and continuing supply chain woes. Economists have lowered expectations for economic growth and raised the probability of a recession as consumer sentiment has turned negative and retail spending has contracted.
As shown in Chart 1, REITs are outperforming broad-market equities on a year-to-date basis through the end of June, with a total return of -19.2% for All Equity REITs, -20.9% for the Russell 1000 and -21.3% for the Dow Jones U.S. Total Stock Market. Since February 23, when Russia invaded Ukraine, the All Equity REITs index has returned -6.4%, versus -10.5% for the Russell 1000 and -10.7% for the Total Stock Market.
June presented a notable dichotomy in performance as REITs declined sharply in the first half of the month and rallied over the second half. Through June 15th, the All Equity REITs index posted a total return of -11.7%, before rallying 5.2% in the latter half of the month. Over these same periods cell tower REITs (infrastructure) were down 12.2% before rallying 9.0% and self storage REITs were down 9.1% before rebounding 5.3%. Lodging/resorts was the only sector that didn’t rebound in the second half of the month: through June 15th the sector had dropped 16.7%, with a further 3.6% decline through the end of the month.
As shown in Table 1, all REIT sectors posted negative total returns in June, led by self storage and diversified at -4.2%, followed by infrastructure at -4.3% and industrial at -5.0%. Lodging/resorts lagged all other sectors with a total return of -19.6%, followed by office at -15.0%, and timber at -14.7%. Mortgage REITs posted a total return of -10.4% in June, with home financing mREITs returning -10.2% and -10.7% for commercial financing mREITs.