DISRUPTION 2020 – MARKETS

DISRUPTION 2020

September Public Market Updates.

Building on our last Disruption piece on the public market’s performance both historically and during the early stages of COVID-19, we are taking a look at some new developing trends. Using the same four large public REITs in each sector (determined by market cap and market relevance) revealed that REITs have underperformed the recent stock market surge.

REIT stock performance has significantly lagged behind the broader stock market indices, compared to both the pre-pandemic stock market peak and our last analysis in May. Nick Dessalines

Research Analyst nick.dessalines@colliers.com

While other U.S. stock indices were revitalized in recent months, the REITs in our index posted an average stock increase of just 6.1% from May 27 to September 4. From February 19, the starting date for our last REIT analysis, to September 4, the values of data center companies increased by 12.7%, followed by losses in industrial (5.9%), healthcare (19.8%), residential (30.4%), retail (32.7%), and office (37.4%) — an average stock decline of 18.9%.

The office sector in particular has been stuck in neutral; values barely increased (up 1.4% during that span). Three out of the four office companies in our index declined. Uncertainty about returning back to work has halted the sector’s growth and forced company executives to rethink real estate strategies. Many firms have also realized that working remotely hasn’t had the negative effects initially feared. Overall, the office sector had the weakest overall stock performance of any property type.

Data centers and industrial continue to be the best-performing sectors. The industrial sector has heavily benefited from the rapid and continued rise of e-commerce in the past few years, coupled with increased delivery demand in this current climate. Data centers, though, are unique, historically less impacted by economic downturns. And the heavy need for technology infrastructure during the pandemic has boosted data center REIT performance.

Highlights

Office is the weakest-performing sector of all, while in May, retail was.

Data centers have performed the best, rivaling the expansion of the NASDAQ index since February. Industrial has been the best-performing large sector in that time frame.

Since our last analysis, life science/ healthcare has posted the strongest gains, followed by retail.

Residential is the only sector in which growth has declined since late May.

Alexandria Real Estate Equities, which focuses on only pure life science, has nearly returned to its pre-pandemic high.

Real estate services companies have rebounded of late, led by Colliers International.