REAL ESTATE - The value of US Real Estate Investment Trusts tumbled last week amid a fall in equity share prices across global markets and investors’ anticipation of an interest rate rise.
In a commentary, Royal Institution of Chartered Surveyors (RICS) economist Oliver Gilmartin said direct investment in real estate would benefit from the market correction. Its relative stability and low correlation with equities ensured direct investment in real estate would “still have its fans”, he said.
“The investor perception is that interest rates might rise again, which would be positive for the property market because strong growth will lead to rental increases,” he told IPE Real Estate.
Despite no real change in fundamentals, REITS have fallen more than 10% since the market peaked in March – an indication, Gilmartin said, that “changes in sentiment can have a much quicker impact on REITS investments compared to direct investment”.
“Pension fund managers already know REITS are not a substitute for direct investment but they do offer quick access to income streams,” he said.
Morgan Stanley analyst Matthew Ostrower pointed out last week that investors had penalised companies with exposure to rising variable interest rates – highly leveraged REITS – but not those with stronger growth prospects.
He observed a correlation between the decline in REITS stocks and long-term government bond yields.
