Publications

- June 1, 2021: Vol. 15, Number 6

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Watching the right indicators: Rising rents matter more to REITs than rising rates

by Jon Cheigh

For some investors, there is a perception that you should avoid REITs when rates are rising.

Although sharp increases in interest rates may unsettle markets in the near term, history shows that the direction of the economy and job growth tends to have a greater impact on REIT returns than rising rates. Since 1990, REITs have averaged a 10.8 percent annualized return in months when both the 10-year Treasury yield and US leading economic indicators were rising. While long-term interest rates can affect capital costs, an expanding economy typically drives stronger demand, often leading to higher occupancy levels and giving landlords greater negotiating leverage to raise rents. This has the potential to drive higher property cashflows, higher distributions and higher property values.

In the US, after spiking in the first half of 2020, the unemployment rate has steadily declined and a return to full employment is estimated in 2022. The resulting rise in incomes may translat

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