From a small northwestern observatory…

Can anyone disagree that it’s been a truly lousy year for real estate in general? That said, those with carefully curated portfolios are doing better than expected, given the recession and the pandemic. It may be helpful to get into the nitty-gritty.

The chart data comes to us from the good folks at the National Association of Real Estate Investment Trusts (NAREIT) and specifically the FTSE Indices, which span about $1.1 Trillion in market capitalization of REITs by sector. Most REITs had a great year in 2019, with some notable exceptions. Regional Malls were already in some trouble, and self-storage was a bit of an underperformer. However, single family home REITS (which primarily invest in rental houses), timber, infrastructure, and industrial all had a banner year last year.

This year, and somewhat expectedly, data centers and infrastructure are still doing well, showing positive returns. The work-at-home and school-from-home has put double duty on the nation’s internet infrastructure. Add to this the increased burdens of Netflix, Amazon Prime, and the like, and you can immediately see that if trends continue, the revenues and profits from those sectors have significant growth prospects.

Retail is a mixed bag. In my own observation, many retail establishments are doing “OK” — those which serve necessities (groceries, pharmacies). Historically, “big box” hardware (Lowes, Menards, Home Depot) did well in recessions, because flat-line home sales led to people fixing up the homes they already owned. However, this has changed a good bit this year. The breadth and depth of this recession has put pause to all but the most urgent home repairs. Other sorts of discretionary shopping (clothing, furniture) are at a near standstill.

I would note that in most recessions, household formations continue, and this feeds into the dynamic of residential (apartments, rental housing). However, in 2010, household formations nearly ceased, causing a real hic-cup in the housing market. This year could be similar.

There is obviously more in this than meets the eye. If you want to discuss this any further, please reach out. I’d enjoy hearing from you.