Should REIT Investors be Concerned about Changing Economic Conditions?

Abstract

Current economic development in global markets promises gradually rising interest rates, which seems to concern many investors of the Real Estate Investment Trusts (REITs). The aim of this article is, based on the data from 1972 through 2017, to describe the sensitivity of REITs' total returns to those of the stock market and to the dynamics of interest rates, and to compare the findings with previous research published during the 1990s in order to identify any shifts in the market behaviour. Our OLS regression models will study the effects of the stock market performance and changes in interest rates on both the equity and mortgage REITs. As we will demonstrate, REITs remain sensitive to the stock market performance, but changes of interest rates have little temporary effect on their performance. Contrarily to popular beliefs, there is little evidence that long-term oriented and diversified REIT investors should be overly concerned about rising interest rates.