REIT investing has been predictable in its unpredictability this year, as rising bond yields—and slightest hints of a rate hike—have sparked selloffs, shooting prices south. But that roller coaster ride could come to an end now that the market is expecting interest rates to rise on Dec. 16, Forbes reports.
In November, the US added 211,000 jobs, putting the economy on target for 2.5 million jobs added in 2015. And 39,000 leisure and hospitality jobs were gained in November, thanks to the holiday season.
Meanwhile, the unemployment rate lingers around 5%, and the more important underemployment rate stands at 9.9%, the second-lowest rating in the past seven years. At the same time, demand for space has the US vacancy rate at 6.3% in Q3, the lowest level in almost a decade.
That rate is expected to go down to 6.1% as more stores open. This will support an average rent increase of more than 5%. The slight rate hike signals an improving economy, and REITs should benefit from the cash flow growth that should offset the short-term rise in rates.
At the same time, many US REITs are trading at discounts—less than their underlying asset value—a change from the premiums of the past four years. And with the rate hike likely on the horizon, hopefully the roller coaster will settle down. [Forbes]
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