05/21/2020
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Industrial is Top Performing Sector for Rent Collection
WASHINGTON, DC, May 19—A survey of rents collected in May by U.S. REITs showed the level of rent collection was largely unchanged from April, according to Nareit, which represents the REIT industry.
Nareit’s survey results covered six commercial real estate property sectors and compared the level of rents collected in May to those collected in a typical month prior to the COVID-19 crisis. REITs that responded to the survey represented 63% of the equity market capitalization of the FTSE Nareit All REITs Index. REITs in the index collectively own and operate between 10% and 20% of investment grade commercial real estate in the U.S.
“The survey results suggest that, while REIT tenants in some hard-hit sectors continue to struggle, their ability to pay May rent didn’t appreciably worsen, despite the widespread business closings in April,” said Nareit Executive Vice President of Research and Investor Outreach John Worth.
Industrial REITs remained the strongest performing property sector in May with collections equal to nearly 96% of a typical month, a drop of just under 3% from the reported 99% of typical rents collected in April.
The level of apartment rent collections in May remained at 95%, essentially flat with April collections. May survey respondents reported granting rent deferrals for 3% of rent owed.
“The continued ability of apartment renters to meet their rent obligations reflects both the federal government stimulus, including enhanced unemployment benefits, and the fact that REIT apartments generally house individuals who are less likely to have been affected by layoffs to date during this crisis,” Worth said.
The office sector’s May rent collections also remained strong with just a slight decline to 92% from 93% in April.
The health care sector, whose REITs own a diverse group of properties including senior living facilities, medical office buildings, hospitals and other medical facilities, saw an uptick in May rents to 90% from 87% in April. May survey respondents reported granting rent deferrals for 5% of rent owed.
The retail REIT sector includes three subsectors: free-standing retail (single-tenant facilities, oftentimes pharmacies, convenience stores and restaurants); shopping centers (community-based centers frequently anchored by a grocery story); and regional malls. Rent collection varies significantly across the three retail sectors.
May results for free standing retail were essentially flat at 70% of typical rents paid, compared with 71% in April. May survey respondents in the segment reported granting rent deferrals for nearly 18% of their May rent. Shopping center REITs reported 48% of typical rents were collected in May, a two-percentage point improvement over April rents collected. The level of survey participation did not warrant the release of results for malls.
“The prevalence of essential businesses such as grocery and drug stores among the tenant base for many free standing retail and shopping center REITs is a stabilizing factor for these types of retail properties,” Worth said.
Nareit will conduct another survey at the beginning of June to assess rent collections for the month, and will report on its findings on the Nareit Developments blog.
As the REIT and commercial real estate industry turns its focus to the responsible reopening of the U.S. economy, Nareit will be actively participating and sharing regular updates here on The Great Restart—the steps Nareit members are taking to prepare for reopening, to protect their employees, tenants, and communities, and to assess new ways to support how Americans work, play, and live. This is the first phase of a “new normal” for our piece of the stream of commerce and will continue to evolve.