One of the hardest-hit asset classes in the first quarter of 2020 was publicly listed US Real Estate Investment Trusts (REITs). However, the vaccine-driven global economic recovery has lifted the group off its pandemic low to a nearly 90% cumulative return over the past 18 months. REITs have enjoyed strong returns that rival those of US equities thus far during the reopening economy. The question, then, is whether this strong rally has legs.
We believe that a new bull market for real estate may still be in its early days and the asset class still offers strong return opportunity. Despite rising inflation and the expectations for government bond yields to move higher, the current backdrop is favorable for REITs, particularly sectors that are tied to housing, the cyclical recovery, and the digital economy.