While stock investment continues to soar, REIT stock prices are not keeping pace with the broad stock market, a challenge that industry experts attribute to the popularity of tech stocks.
The S&P 500 index rose 21.8% last year, but the FTSE Nareit All Equity REITS index increased by 8.7% in comparison. This trend has carried over into 2018 with the S&P rising more than 6% so far this year while the REIT index has declined 2.4%, the Wall Street Journal reports.
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A recent National Association of Real Estate Investment Trusts report said REITs' current performance mirrors that experienced during the 1999 tech bubble, when the latest tech companies were attracting the attention of investors and causing them to overlook and undervalue REITs as an option.
Others attribute REITs' poor performance to the fact that REITs tend to be more susceptible to rising interest rates and varying sector fundamentals, which can decrease real estate values, the WSJ reports.
NAREIT economist Brad Case told Bisnow in December there is an apparent divide between current REIT stock prices and the value of their assets and overall portfolios, which means there is room for growth, and investors have an opportunity to pick up REIT stocks at a discounted price.
“The idea that [REITs] have lost their appeal doesn’t make any sense at all,” Case said. “Investors always need to be thinking about what’s going to happen in the future. As the economy improves, you’re going to see strong real estate operating fundamentals, which means you want to own real estate while that’s happening. You don’t want to wait until returns are high to invest."
Though REIT stock performance continues to lag, REIT yields soared in several sectors last year.
While retail REITs have experienced major downturns, including a -8.11% average return in December, industrial REITs saw returns of 20.68% year to date in the fourth quarter, while infrastructure REITs showed the largest returns of the year with 32.6%. Data center REITs came in second with year-to-date yields of 26.2%.
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