Institutional Investor: REITs Rally to Continue, Albeit a Slower Pace
According to Institutional Investor: This year's torrid rally in U.S. real estate investment trusts is likely to continue in the coming months, though at a slower pace, as fundamentals remain positive in the real estate market, analysts say.
Modest U.S. gross domestic product growth of about 2 percent is "okay for real estate demand, not great," says Cedrik Lachance, director of U.S. REIT research for Green Street Advisors in Newport Beach, California. "But there has been relatively limited supply over the last seven years. When you combine okay demand with relatively little supply, you end of with fundamentals that are sustainably good."
Industrial REITs in the FTSE NAREIT index have been on a tear, returning 23 percent in the first half of the year. The growth of e-commerce has played a major role, with companies like Amazon.com requiring increased warehouse and distribution space. Online retail sales grew 15 percent last year, to $341.7 billion, according to the Commerce Department. That dollar amount represented 7 percent of total retail sales, and analysts expect that portion to increase further. "Online shopping has greatly increased the demand for industrial space, compared to what the level of overall retail sales would suggest," Green Street's Lachance says.
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