Why REITs Outperformed in 2021: Nareit

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It’s official: 2021 was the REIT industry’s strongest year on record since 1976, according to Nareit‘s Q4 REIT Performance Report

REITs led the U.S. stock market in investment returns. The FTSE Nareit All Equity REIT Index posted a total return of 41.3 percent in 2021, and the FTSE Nareit Equity REITs index increased to 43.2 percent. Meanwhile, the S&P 500 saw a return of 28.7 percent in 2021.

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Every REIT sector recorded positive returns in 2021. Self storage topped the list with returns of 79.4 percent, followed by the industrial sector, which saw returns of 62 percent. The office sector, continuing its adjustment to remote work and other ramifications of the pandemic, still posted positive returns totaling 22 percent.

Nareit Senior Economist Calvin Schnure attributes REITs’ extraordinary performance last year to a notable improvement in operating factors, including a rebound in earnings and a recovery in occupancy rates.

Unanticipated consequences

One unexpected assist for REITs came from the long-term performance of the digital economy. When COVID-19 hit, consumers turned to e-commerce during the early days of shelter-from-home and remote work. This indirect boon for the real estate industry bolstered industrial REITs, data center REITs and infrastructure/cell tower REITs. As the pandemic and the resulting necessity to rely on technology changed, however, e-commerce activity did not. Schnure told Commercial Property Executive:

“As the physical economy reopened and in-person transactions rebounded, the online activity didn’t sag or give back its prior gains. If anything, it has continued to grow rapidly, as it appears that millions of people have found new ways to use technology to simplify their lives in ways they hadn’t considered prior to the pandemic. As a result, demand for industrial real estate, data centers and cell towers, has continued to grow.”

And there are no signs that the impact of the digital economy on real estate will wane. “Trends through the second half of 2021 suggest that digital real estate will continue to be strong in 2022,” Schnure added. “Vacancy rates in industrial properties have fallen to practically zero and rents and property values are rising rapidly.”

Read the full report by Nareit.