REITs Gain on Inflation News, but Not In Unison

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New inflation data boosted real estate stocks, but investors remain cautious due to economic slowdown. Plus, real estate executives' outdated strategies and properties are now liabilities in a market that demands new skills and technology to succeed.

REITs Gain on Inflation News, but Not in Unison

New inflation data has given investors hope that the Fed will lower rates this year, boosting real estate stocks as many see a brighter future for the sector. However, the news that real estate outperformed the broader market omitted an important detail: not all real estate sectors performed equally.

Office properties seemed to do the best, likely because office REITs are still far below their all-time highs and are most at risk of default. Boston Properties was up 5.5 percent yesterday. New York-heavy portfolios performed well, with SL Green and Vornado up 6.28 and 7.64 percent, respectively. The industrial sector also did well, with Prologis up 3.28 percent and Public Storage up 3.21 percent.

Other sectors didn’t fare as well. Slowing inflation could negatively impact retail real estate, which remained fairly stable, with Simon Property Group gaining only 0.24 percent. Investors may also see headwinds for rental growth with slowing economic data; Invitation Homes was down 1.12 percent, and Avalon Bay dropped 0.42 percent.

The big winners were platforms for residential real estate, which have been hit hard by low transaction volumes. Redfin was up almost 9 percent, and Opendoor shot up 8.42 percent.

Lowering interest rates is undoubtedly a positive sign for the industry, contingent on a drop in inflation. But, dropping inflation has many other market implications. Investors might still worry that a slowing economy could harm some sectors more than lower rates would help, making them cautious about certain property types while confident in others.

Perspectives

Most real estate executives believe they can continue to succeed using their old strategies, much like confident gamblers who think they can always beat the house. But, the game has changed dramatically; outdated properties and formulas are now tickets to failure in a market that requires new skills and technology to thrive.

What’s Happening in Commercial Real Estate

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Good read
A new book, Housing the Nation: Social Equity, Architecture, and the Future of Affordable Housing, looks at the multidisciplinary collaboration needed to fix America’s housing shortage.

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