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  • Writer's pictureRealFacts Editorial Team

Midyear Update: REITs Show Resilience with Steady Gains


real estate

As we reach the midpoint of 2024, Real Estate Investment Trusts (REITs) are showing promising signs of recovery and growth. For the second consecutive month, total returns for the FTSE Nareit All Equity Index rose, with a 2.2% increase in June. This improvement has brought the year-to-date performance of the index to a decline of just 2.1%, a significant recovery from the nearly 10% drop seen in the spring.


This broad-based growth saw almost every property segment posting positive returns, with specialty REITs leading the way with a 7.8% increase. Self-storage and residential REITs also performed well, up 7.3% and 5.8% respectively. However, diversified, timberland, and telecom REITs did not share in the gains, posting declines.


Edward F. Pierzak, Nareit's senior vice president of research, noted the importance of these gains, particularly in sectors like specialty REITs, which saw strong performance from companies like Iron Mountain. Iron Mountain, a document and data storage firm, has expanded into data centers and saw year-to-date performance up nearly 32%.


Self-storage and residential REITs also showed robust growth, driven by continued demand in the apartment sector. John Worth, Nareit's executive vice president for research and investor outreach, pointed out the interconnected nature of self-storage and residential demand, with apartments doing well often leading to increased self-storage usage.

Despite ongoing concerns about inflation and interest rates, there is rising optimism for at least one rate cut by the end of the year. This optimism, combined with the solid fundamentals and conservative balance sheets of REITs, positions them well for a potential rally in the latter half of 2024.


Pierzak and Worth emphasized that the operational performance of REITs remains strong, with high occupancy rates and consistent year-over-year growth in key financial metrics. Public REITs have also maintained disciplined balance sheets, with lower debt levels and a higher proportion of fixed-rate debt compared to their private counterparts.


Additionally, public REITs have outperformed private real estate in recent quarters, with a sizable cap rate spread indicating further potential for outperformance. This spread has narrowed from a peak of 244 basis points in the third quarter of 2022 to around 120 basis points today, suggesting that public REITs still offer significant value.


Looking ahead, the economic outlook is more optimistic, with fewer economists predicting a recession compared to a year ago. This improved outlook, combined with REITs' operational strengths and favorable debt profiles, suggests that REITs are well-positioned to capitalize on market opportunities in the second half of 2024.

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