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Resilient REITs
Empty office space has given real estate investment trusts a black eye . But the space offers opportunity . By Christopher Williams
WITH OFFICE VACANCY HITTING RECORD highs from California to Connecticut , the chorus lamenting all those empty cubicles is now echoing through the halls of Congress , not just from the corner office . In December , Sen . Joni Ernst of Iowa held a news conference urging federal workers to return to the office , putting federal agencies on blast after a report by the Government Accountability Office showed these organizations ’ headquarters were being widely underused .
With all the attention paid to empty office buildings , asset allocators might be tempted to shy away from investing in real estate investment trusts altogether . That would be a mistake .
Though REITs have rallied robustly since the summer after a lackluster 2022 , analysts and fund managers maintain it ’ s not too late to allocate a portion of your portfolio to the dividendrich asset class . REITs investing in cell towers , the healthcare space and multifamily rentals top their list of attractive sectors offering healthier fundamentals and brighter growth prospects than office real estate vehicles .
There ’ s no question landlords are still struggling to fill offices . But the REIT universe is very diverse , with companies owning , managing and developing everything from office buildings to apartments to retail malls . Each sector has its own fundamental drivers , growth strategy and sensitivity to the economy and interest rates .
“ The diversity of property sectors in the publicly traded REIT market is profound ,” says Evan Serton , senior vice president and senior portfolio specialist at Cohen & Steers , a New York City investment management firm with $ 75.2 billion in assets . “ Office REITs are only 3 % of the publicly traded REIT market . So , there ’ s 97 % of the market that ’ s in other things , and some of those are enjoying much healthier prospects , much healthier growth .”
Furthermore , despite the recent REIT rally , some analysts believe REITs are still fairly valued . The 197 REITs in the FTSE Nareit All Equity index rose 11.36 % for the year ended December 29 after falling 26.29 % in 2022 . Helped mainly by the expectation of lower interest rates , REITs outperformed the broader U . S . equity market in the fourth quarter .
JANUARY / FEBRUARY 2024 | FINANCIAL ADVISOR MAGAZINE | 53