Deutsche Bank Sees A Better 2016 For REITs: Here's Why

On Tuesday Deutsche Bank issued a report on the United States REIT Industry for 2016, predicting a positive outlook and better performance than 2015. Vin Chao, Greg Schweitzer, and other Deutsche Bank analysts wrote that, "While moderating growth usually doesn't scream buy, for the REITs we think the outlook should serve to increase the appeal of stable REIT cash flows, something that was not the case heading into 2015." Deutsche Bank noted that the market for REIT's is not in favor of interest sensitive entities, thus the firm is bullish on sectors such as Data Centers and Local Retail which are both insulated from more cyclical challenges. Two major themes for Deutsche Bank in the REIT industry are consolidation and privatization which they believe will have a major impact on the level of demand for certain names within the REIT industry. Thus consolidated apartments and Class-A owners of Malls should be in high demand and command an attractive valuation. Amid the signs of continued growth Deutsche Bank believes that there are two main challenges facing the REIT Industry going forward. The first is that elevated pricing causes cause concern for investors. The second is that allocation decisions could become more scrutinized in the investing space as the current cost of capital in the REIT investments could be called into question with other attractive investments in the marketplace. Overall, however, Deutsche Bank sees continued strength in REITs and believes that, "expected returns in the 13 percent range are achievable in 2016."