Real estate stocks see best returns in 5 years, but trail S&P

Gains through November exceeded 20 percent, thanks to falling interest rates

Dec.December 17, 2019 11:00 AM
Warehouse owners performed the best, while mall owners continued to struggle (Credit: iStock, Pixabay)

Warehouse owners performed the best, while mall owners continued to struggle (Credit: iStock, Pixabay)

Declining interest rates have helped push real estate stocks to their best returns in five years.

Real estate stocks as a whole had returns of more than 20 percent through the first 11 months of 2019, the Wall Street Journal reported. Warehouse owners performed the best with a year-to-date return of 46.7 percent as of Monday’s close, while mall owners continued to struggle as brick-and-mortar retailers retrench.

Real estate investment trusts had one of their best years of the decade, with 25 percent total returns year-to-date, as The Real Deal reported last week. The real estate industry’s performance still trails that of the S&P 500 index, which is up more than 27 percent year-to-date and has been hitting record highs.

Because of the real estate industry’s dependence on debt, and the requirement that REITs distribute most of their income as dividends, its stocks have struggled with rising interest rates in recent years. But this year the Federal Reserve has taken action to reduce rates three times, giving industry stocks a boost.

But some expect rates to rise in 2020 as the Fed aims to keep inflation in check. “The risk of an economic downturn has receded and, combined with the very strong job market, it should lead to a slightly higher rate environment,” Freddie Mac’s chief economist, Sam Khater, told the Journal.

A “phase one” deal in the U.S.-China trade war, as well as greater clarity on Brexit, have helped stabilize the economic outlook for the time being.

Five out of 10 sectors in the S&P 500 have outperformed real estate this year, according to FactSet: information technology, financials, communication services, industrials and consumer staples. [WSJ] — Kevin Sun

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