Global Market Review
The U.S. REIT market underperformed the European and Asian REIT markets in the third quarter. Global REITs were up over 2% during the quarter. Investors balanced concerns of uncertainty around the duration of the global pandemic and the shape of the recovery with positive vaccine news, green shoots of economic activity, accommodative monetary policy globally and massive government stimulus including credit market support to bridge the economic gap. As a result, performance between risk on and risk off real estate was somewhat even. In the U.S. the Fed’s policy of a higher inflation tolerance signals that interest rates will remain low indefinitely. This is very positive for REITs as they trade at wide yield spreads to sovereign debt and there will likely be yield compression as investors realize rates will not be going up anytime soon. The policy looks similar to Abenomics in Japan, which after introduced, Japanese REITs outperformed the broad market Nikkei by 1100 bps over the following two years. Generally, parts of the world that are further along in their COVID-19 economic recovery like Japan and Sweden outperformed the rest of the world. A second wave of virus outbreaks in areas that have re-opened (which we have already seen in Europe, the U.S. and Australia), further lockdowns, a lack of additional robust government stimulus and the U.S. election uncertainty remain the main barriers to fully turn investor sentiment. Active management continues to be an important tool in the investor toolbox in a world of uncertainty and return dispersion across property types and regions.