Third quarter REIT performance and upcoming trends were the focus of an Oct. 3 webinar hosted by Institutional Real Estate, Inc. (IREI) and Nareit. John Worth, executive vice president of research and investor outreach at Nareit, and Scott Crowe, president and chief investment strategist of CenterSquare Investment Management, joined Mike Consul, senior editor of IREI’s Real Asset Adviser magazine, for the discussion.
Worth noted that REITs fell 8.3 % in the third quarter and highlighted the outsized impact that higher interest rates had on real estate during the quarter. “REITs were really negatively effected by rising interest rates,” he said, while also noting that data center REITs were the top performers on a year to date basis.
Crowe reiterated the adverse impact of interest rates during the quarter, noting that the Federal Reserve had performed a “complete reversal” of monetary policy and a “180 (degree turn) on quantitative easing.” On a positive note, Crowe pointed out that much of the repricing with regard to cap rates in the public markets has already occurred.
Other webinar topics included the ways in which digital transformation is influencing real estate. “The influence of tech and proptech is in every property type now,” Worth said, while also describing the role of technology as “endemic” in the sector.
That’s a trend that clearly benefits data centers, and Crowe pointed out that a supply/demand imbalance was impacting the sector even before artificial intelligence burst onto the scene and that AI has created new sources of demand for data centers.
Meanwhile, Worth and Crowe discussed the disparity between public and private real estate. Worth noted that REITs have had the advantage over private real estate in that they were more prepared for the higher rate environment due to the steps taken to lower leverage.
Among other webinar discussion points:
- Worth noted that mREITs account for 5-7% of total REIT market cap and are paying yields today of 12-13%.
- As for mergers and acquisition activity, the “really interesting” activity has been in the public REIT to REIT space, particularly in the same sector, Worth said.
- Crowe said he anticipates an acceleration of repricing in the private markets in the remainder of 2023 and into 2024.
- Outside of the office sector, “I don’t see a systemic issue in the real estate market,” Crowe said.
- Data from GRESB shows that REITs outperform private real estate on multiple measures of sustainability.
- As for the likely property type of the year for 2024, Worth picked data centers while Crowe chose retail.
The next webinar will analyze fourth quarter performance of the FTSE Nareit U.S. Real Estate Indexes. Sign up to receive updates on that webinar, other events, and research.