I spent some time today talking with Brad Case about the REIT and real estate markets going into the New Year. Brad is a Senior Vice President, Research & Industry Information at the National Association of Real Estate Investors and has become a valuable source of information when it comes to real estate investing. Brad is one of the few upbeat voices on REITs as we enter 2017 and we spent some time talking about his expectations.
First of all, he pointed out that REIT fundamentals are very strong. Occupancy rates and rents are rising right now. New construction is still well below historic lows, and the absorption rate for new properties is very high right now. There are signs that the economy is picking up and higher GDP growth is closely correlated with high returns for commercial real estate and the REUTs that invest in those assets.
Brad also shared with me the results of his recent research in yield spreads and REIT returns that is very bullish for long-term returns for real estate investment trusts. He found that there the relationship between the spread between REITs and the 10-year Treasury yields is highly predictive of how REITs perform over the next five years. The higher the spread better REITs performed. He told me that right now the spread is pretty high and is predicting a five-year average annual total return of over 14%.
To make sure he did not see accidental conclusions he tested the yield spread using other fixed income assets and found that it held true when using different maturities of Treasuries, corporates, and even high yield. All of them worked, and all of them are bullish with the high yield spread being at one of the highest most bullish levels ever.
He shared his data ...
