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How Pressured Could Rental Rates Be for REITs?

Long-term leases should mitigate the short-term impact.

Editor’s note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

For real estate investment trusts, the coronavirus outbreak’s short-term impact on rents is likely to be limited because most tenants are tied into long-term leases. Leases renew every 5-10 years, so only about 13% of a REIT’s tenants are up for renewal in a given year. As long as this pandemic doesn’t dramatically shift all consumer behavior to online shopping, the long-term cash flow outlook should be relatively intact. However, if the virus outbreak is prolonged and leads to bankruptcies, the possible reduction in occupancy rates could take time to replace, which would have a significant short- to medium-length impact.

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