Defined Benefit
Insurance Assets
Nonprofit

Pandemic Affects All Sectors of Real Estate and Real Assets

Pandemic Affects All Sectors of Real Estate and Real Assets
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1 min 15 sec

Income positive, except for Hotels

  • Hotel and Retail are the most challenged sectors of private real estate, while Office faces uncertainty; Industrial remains the best performer.
  • Income remains positive except for the Hotel sector.

NOI declines as Retail suffers

  • Net operating income (NOI) declined as Retail continues to suffer.
  • 1Q21 rent collections showed relatively stable income throughout the quarter in the Industrial, Apartment, and Office sectors. But the pandemic’s impact on regional malls has hindered Retail.
  • Class A/B urban apartments were relatively strong, followed by Industrial and Office.
  • Transaction volume has dropped off during the quarter with the exception of multifamily and industrial assets with strong-credit tenants, which are trading at pre-COVID-19 levels.
  • Cap rates remained steady during the quarter. The spread between cap rates and 10-year Treasuries is relatively high, leading some market participants to speculate that cap rates will not adjust much.
  • Price discovery is happening and there are limited transactions.
1q21 sector quarterly returns

Global REITs outpace equities

  • Global REITs outperformed in 1Q21, gaining 5.8% compared to 4.9% for global equities (MSCI World).
  • U.S. REITs rose 8.9% in 1Q21, beating the S&P 500 Index, which gained 6.2%.
  • Globally, REITs are trading above NAV with the exception of those in Hong Kong, the United Kingdom, and continental Europe.
  • Property sectors are mixed, between trading at a discount or premium.
  • Ongoing volatility in REIT share prices offers opportunities to purchase mispriced securities, individual assets from REIT owners, and discounted debt, as well as to lend to companies and/or execute take-privates of public companies.

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