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The Federal Reserve cut its benchmark borrowing rate by another quarter point — an expected move that did little to help publicly traded real estate investment trusts.
Total returns for the 140 equity REITs that Nareit, an industry organization, tracks edged down 2.27 percent as of the end of the day Wednesday. So far for the month, they are down 2.97 percent, on pace to be the worst monthly showing so far this year. Year to date, however, returns are up 1.41 percent.
Mortgage REITs fared better, thanks to the recent interest rate drops. Overall, the total returns for these 31 companies had ticked down just 0.98 percent on Wednesday. But so far for the month, they are 0.18 percent higher, and for the year, they have surged 10.27 percent.
Of the mortgage REITs, home financing companies (up 16.23 percent year to date) are outperforming commercial financing firms (down 0.63 percent year to date).
The Fed’s rate cut this week was the group’s second this year. The central bank previously foreshadowed the cut, along with another later this year. However, Fed chair Jerome Powell hinted that, amid “moderate” economic activity, the bankers disagreed over whether a third cut would be on the way.
The rate cuts — and the anticipation of cuts — had been welcome news to the real estate industry and REITs in particular, which tend to be sensitive to interest rate fluctuations. Total returns of Nareit’s equity REIT index surged in August and grew again, though at a slower pace, in September.
This month, apartment-focused REITs have performed the worst among the sectors so far, with total returns plunging 8.26 percent. In the spring, executives at some of the top multifamily firms said economic uncertainty puta question mark on renters’ employment outlooks. Similarly, tariffs would likely lead to increased expenses. Meanwhile, in the third quarter, rents edged down nationally, and supply outpaced demand, according to multifamily data firm RealPage. However, renting is cheaper than owning a home and deliveries of new units are slowing, signaling a better balance between supply and demand in the near future.
Office REITs, hammered by vacancies, high debt loads and elevated interest rates, also have been having a poor showing, dropping by 7.89 percent so far this month.