Apartment REITs Expected To Outperform Market Amid Russia-Ukraine War
As the Russia-Ukraine War creates uncertainty in the market and pulls down the stock market at large, analysts predict one sector to buck the trends and see gains.
Apartment real estate investment trusts will outpace the rest of the market as a result of high demand and low inventory, analysts told The Real Deal.
Average apartment rent growth ended 2021 at almost double any previous year, according to the Yardi Matrix National Multifamily Report, and rents are slated to climb even higher this year. Apartment REITs focused in the Sun Belt and Southwest posted large year-over-year earnings growth in 2021, with Mid-America Apartment Communities, for example, seeing a 122% jump in its earnings per share in the fourth quarter.
Apartment occupancy rose 2.1 basis points last year to 97.5% according to a RealPage Analytics Blog, marking the highest point since RealPage began tracking apartment metrics in the early 1990s.
Record demand and a lack of inventory caused by construction delays mean apartment REITs have “pricing power and the ability to generate rent growth,” Haendel St. Juste, a senior REITs analyst at Mizuho Securities, told TRD. That has set those stocks up for future growth this year despite the market turmoil caused by the Russia-Ukraine War, analysts note.
Meanwhile, investors expect a bear market in 2022, according to Bank of America’s Global Fund Manager Survey, with 60% of respondents expecting securities to fall 20% or more. That’s more than twice the amount of respondents who expected a bear market prior to the Russia-Ukraine invasion last month.
Hospitality stocks have been among those hit the hardest over the past month as rising inflation has dented consumer spending. But apartment rent hikes are outpacing inflation, with the consumer price index up 7.9% year-over-year in February compared with a 12.3% jump in national median rents, TRD notes, citing Zumper data.
“The economic fundamentals driving rent higher are not going away any time soon,” Zumper data scientist Jeff Andrews said.
Real estate investment trusts across all product types will serve as a relatively safe hedge against inflation and other market concerns, according to a Seeking Alpha report.