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While economists at Capital Economics still expect US Real Estate Investment Trusts (REITs) overall to fare reasonably well over the next couple of years, they no longer anticipate that REITs will outperform the US stock market.

Key quotes

“If COVID-19 vaccines allow a return to something that looks a lot like pre-virus life in the coming year, we expect US REITs to continue to fare well in absolute terms. In those circumstances, we would expect stronger growth and an end to social distancing to support the demand for many types of commercial property. US REITs would also probably benefit from a further improvement in risk appetite.”

“Another reason to think that US REITs will fare well is that many sub-sectors still have a lot of ground to make up relative to underlying commercial property.”

“Despite our optimism about the performance of US REITs we are no longer as convinced that the returns from them over the next couple of years will be strong enough to beat those from the US stock market. 

“We forecast that the returns from direct US commercial property as an asset class over the next couple of years will be fair, but far from stellar. A middling performance from underlying commercial property would limit the upside for many REITs.”