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REIT share prices have often responded negatively to rising interest rates, at least since 2013. Is this warranted by the outlook for their future earnings?

We decided to turn the tables and ask investors and other readers of the Nareit News Digest for their views on what will have the greatest impact on REIT share performance in 2018.

Now that we are on the other side of the Wall of Maturities, it’s worth a look back to see how the market fared, and what are the prospects for the CMBS market in the year ahead.

Economic fundamentals continued to support the real estate markets.

The sustained rise in prices of commercial real estate over the past seven years has prompted questions whether valuations may be getting ahead of themselves.

Market interest rates typically increase during periods when macroeconomic conditions are strengthening, the same strengthening that often drives positive REIT investment performance.

Total FFO of all listed U.S. equity REITs rose 3.2 percent to $15.1 billion in the fourth quarter of 2017, according to the Nareit T-Tracker®.

Two of the biggest questions for investors for the remainder of this year will be what happens to interest rates, and how will changes in the interest rate environment affect businesses and financial markets?

The REIT market generally overreacts initially to news that affects the timing and possible aggressiveness of Fed tightening, as well as to increases in long-term interest rates, but tends to recover over time.

The question on everyone’s mind is, will this drive up cap rates, possibly causing property prices to fall?

REITs raised $38.3 billion in common equity in 2017, the highest annual total since 2013.

Interest rates remain in the headlines, and given their importance in the U.S. economy, it’s smart to pay attention to what they may (or may not) be telling us.

Historically, when REIT dividend yields became high relative to the yields on other income-oriented investments, that has usually been a sign that REITs had become undervalued and were likely to perform strongly over the next several years.

For well over a year now, disappointing REIT returns have been blamed on expectations for rising interest rates, and short-term increases in REIT volatility have been blamed on uncertainty regarding the timing and magnitude of interest-rate changes.

REITs have provided that diversification benefit because their underlying returns are driven by the real estate market cycle, which is very different from the business cycle that drives the returns of most other companies in the stock market.