Sinking REIT Returns Begin To Stabilize With Cautious Optimism For 2023

It’s been a rough 12 months for real estate and its investors, but there is a small glimmer of hope for real estate investment trusts (REITs) and those who saw their investment performance plummet by as much as 27% in 2022. 

Global financial services firm BTIG LLC, co-owned by Goldman Sachs Group Inc. GS and Condor Trading LP, released some slightly better REIT news, detailing a small but positive tick upward of 0.1%. Another indicator, the most recent data from the FTSE Nareit U.S. Real Estate Index, reported a REIT drop of 0.33%. Both numbers show that recent REIT performance is at least close to breaking even in the most tumultuous real estate market since the Great Recession. 

Brendan Cooper, the client success manager for global technology solutions provider Confluence Technologies, told Benzinga, “If you look at REIT returns, both public and private, they’re turning positive,” especially in private real estate ventures. 

Cooper also has higher hopes for the second half of 2023. “Historically, if you go back and think about the last time we saw REITs down and the S&P negative — you see some similar cycles. You can certainly argue that in the second half of 2023, (REIT) returns will rebound.” 

BTIG is also cautiously optimistic. The firm's recent report stated, “We remember well that REITs were flat through the first quarter last year before the carnival ride started in earnest.” The firm believes investors should look at dividends playing “a more prominent role in REIT returns by providing at least some baseline of return expectations for investors.”

In its written evaluation, BTIG also reported that the three best-performing groups in 2022 were freestanding (down 6.1%), specialty (down 8.7%) and strip centers (down 12.2%). In 2023 those top three sectors now rank Nos. 9, 12 and 13 in the new year — at or near the bottom of the pack. But BTIG is especially bullish in 2023 on the performance of the healthcare, industrial and data center sectors at the beginning of this year after lackluster 2022 returns. 

Confluence’s Cooper saw 2022 as an unavoidable hornet’s nest for investors. “Over time, what we’ve seen is a move out of public equity to private equity. The fact is that “2022 was a year where there was nowhere to hide,” he said.

That said, BTIG warns 2023 will not sway from real estate market ups and downs outside of the larger investment portfolios. “To date, consensus estimates for most sectors still include at least some external activity at baseline,” the company reported. “Either way, this sets up the potential for greater earnings volatility, especially for smaller portfolios.”

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