Federal Reserve officials did not shatter expectations this week when they held interest rates steady. But investors in public real estate investment trusts, in the midst of earnings season and eyeing a potential spike in tariffs, don’t seem to be thrilled.
As of late afternoon Thursday, the FTSE Nareit All REITs index, which tracks 197 U.S. REITs across the real estate spectrum, was down about 1.4 percent. The index ended yesterday down 1.6 percent and almost 2 percent for the week, according to data from Nareit, a REIT industry group.
Not one property type went unscathed, either, as all of Nareit’s sector-specific trackers fell yesterday.
The REIT index’s performance lagged the broader market. The S&P 500 also dropped Wednesday following the conclusion of the Fed’s meeting. However, it was nearly flat Thursday afternoon, as President Donald Trump’s Aug. 1 deadline for countries to strike trade deals loomed.
“No [Fed interest rate] movement means no potential gains for the REITs,” said Kevin Brown, senior equity analyst at Morningstar. “Had there been a cut announced, I definitely think the REITs would have performed quite well relative to the broader market.”
Many investors did not anticipate that the Fed would cut the range for the federal funds rate, and this, for the most part, was already priced into the market, Brown said. While the unemployment rate is low at 4.1 percent, inflation remains high, underpinning the Fed’s decision to not slash rates and continue to shrink its balance sheet, officials said in a statement.
Many REITs are also reporting second-quarter earnings, which is likely to have a greater effect on REIT performance, according to Brown.
So far this month, total returns for the broader REITs index are up 0.5 percent, an improvement from June’s 0.09 percent but about half that of May’s 1 percent gain, according to Nareit.
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Year to date, total returns for equity REITs are up by 2.2 percent, with telecommunications stocks leading the way. Hotels (-12.1 percent) and offices (-9 percent) represent pain points.
Office firms continue to battle the shift to remote and hybrid work that began during the pandemic. Older, pre-pandemic leases that are coming up for renewal also are putting more power into tenants’ hands, Brown said.
Inflation, meanwhile, has been gnawing at the hotel industry, as rates — particularly among lower-end properties — cannot keep pace with inflation and tourism remains down, said Brown, who added that recent earnings from hotel REITs show glimmers of hope for the sector.
“If it’s a risky sector and it’s a risk-off environment, the sector underperforms,” he said.