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Quarter-End Insights

Slow and Steady Wins for REITs

Though many long for faster economic growth, the current environment has actually been very good for landlords--but higher rates could still sting.

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  • Slow but steady macroeconomic improvement generally translates into slow and steady increases in demand for commercial real estate space without spurring too much construction of incremental supply, a favorable condition for REITs.
  • Although interest rates have risen, they remain well below historical averages, and we think higher interest rates could be a major headwind for property valuations.
  • The commercial real estate recovery looks poised to spread from primary gateway markets to secondary ones, although we still generally prefer firms that focus on the former.

 

Todd Lukasik does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.