A sample of 53 public REIT stocks since the COVID-19 outbreak in China shows a downward trend in the real estate market, with data centers faring the best, according to Avison Young research.
Using average stock price among REITs in each sector, Avison Young identified the downward trend since Dec. 31, 2019 as the sharpest in retail (-53.26 percent) and hospitality (-46.90 percent). Data centers, by contrast, showed a 15.94 percent increase since the outbreak. The industrial sector declined by 11.68 percent, the lowest of the other sectors.
“By looking at the performance of REITs concentrated in the commercial real estate industry we can see the far-reaching impact on the industry and notably the sectors driven by discretionary consumer spending and travel,” said Erik Foster, Avison Young principal and leader of the firm’s national industrial capital markets group. “The silver lining is in the data center sector that is seeing a surge in attention given the growing importance of connectivity in keeping businesses operating.”
This REIT analysis showed the following average stock price, as of April 22, 2020: data centers, $216.86; multifamily, $92.77; industrial, $32.37; office, $30.53; retail, $26.51; healthcare, $24.63; and hospitality, $9.46.
The industrial sector, a favored asset class for many investors, had the lowest percentage drop (-11.68 percent) of all sectors reviewed. The global economy continues to see a meteoric rise in consumer demand for ecommerce goods and online grocery deliveries. These positive fundamentals should trickle into the industrial sector as investors look to capitalize on supply chains under a “flight to quality” investment strategy.
“The continued growth in e-commerce and the expanding reliance on distribution and logistics space should put the industrial sector in a strong position to recover at a faster rate than other sectors,” said Foster.
The research showed more intermediate negative impacts for the multifamily, office and healthcare sectors, where declines were 20.56 percent, 27.86 percent and 34.53 percent, respectively.
If unemployment rates continue to climb, the multifamily industry could see increases in vacancy as tenants struggle to pay their rents. Shelter-in-place orders will continue to burden the office sector until employees return to work. Flex office space will suffer the most since social distance guidelines are contrary to appeal of community office space. COVID-19 outbreaks at senior living centers have led to the biggest declines in stock price amongst the healthcare sector, according to the research.
The retail and hospitality sectors have been hit the hardest. The non-existent foot traffic across retail centers and historically low occupancy rates at hotels shows these assets have the highest bankruptcy risk and, therefore, the most uncertainty among investors, according to Avison Young’s research.