REITs have outperformed the industry’s long-term average in 2017 despite under-performing the broader stock market,according to Brad Case, Nareit senior vice president for research and industry information.
As of Dec. 15, total returns of the FTSENareit-All REITs Index were 10.2 percent for the year.
Returns in the broader market were dominated by large-cap stocks, especially tech stocks, Case said. That, in turn, made REIT investments look relatively weak.
Case said he is forecasting a reversal of 2017’s performance next year, noting that tech stocks and large cap stocks have become “aggressively valued.” REITs, on the other hand, have not been rewarded for the strength of market fundamentals, according to Case. As a result, they have become undervalued relative to other investments, he said.
Case said he expects REITs to outperform the broader stock market in 2018.Meanwhile, Case pointed out that six REIT property segments outperformed the broader market in 2017, led by infrastructure REITs with total returns close to 35 percent and data center REITs with returns of nearly 30 percent as of Dec. 15.At the other end of the scale, the only REIT segment that has lost money in 2017 has been retail, Case said.Going forward, as investors look more closely at the role of changes in retail patterns and consider the earning power of retail REITs, “you’re likely to see some closing of that gap,” Case said.