REITs notched banner year in 2021, but 2022 could be rocky

Trusts unlikely to see same success after recent rebound: report

REITs notched banner year in 2021, but 2022 could be rocky (iStock, Illustration by Kevin Cifuentes for The Real Deal)
REITs notched banner year in 2021, but 2022 could be rocky (iStock, Illustration by Kevin Cifuentes for The Real Deal)

Real estate investment trusts are coming off one their biggest years in decades, but 2022 might not have a repeat performance in store for the sector.

The FTSE NAREIT Equity REITs index was up 36 percent this year through Dec. 23, per data from real estate analytics firm Green Street reported by The Wall Street Journal. Those figures mark 10 percentage points greater than the gains made by the S&P 500 during 2021.

In terms of absolute performance, the REIT index is on pace for its best year since 1976. However, some trusts fared better than others.

Total returns of industrial REITs have exceeded 40 percent since the start of the pandemic, according to the Journal. Total returns for self-storage landlords have been even greater, reaching more than 80 percent. On the other hand, properties like office buildings, malls and hotels have struggled as those industries suffered through lockdown orders.

Analysts surveyed by the Journal pumped the brakes on predictions for an equally strong 2022 for REITs.

Green Street reported some of the gains this year were a result of a rebound from 2020. Considering the year was a recovery from unprecedented circumstances, sustaining the sector’s momentum into another year could be challenging.

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REITs are facing the same looming obstacles as the rest of the real estate industry, including the Omicron coronavirus variant and rising inflation.

“Headline risk around additional variants, inflation and interest rates will create significant volatility over the next 12 months,” said an Evercore ISI report on REITs, according to the Journal.

Much of the REIT picture will be painted by the progress in confronting the pandemic next year.

Surges in new coronavirus cases and the spread of new strains could create issues for REITs invested in offices and senior housing, the Journal noted. Success in curbing new waves of the pandemic, however, could buoy the travel industry and spur a rebound for malls and hotels.

[WSJ] — Holden Walter-Warner