REITs End 2021 Up More than 40%


Sometimes I’m asked, “Why is real estate a superior investment to stocks and other things?” First, I try to reframe the question. I don’t know that it’s “better.” I’m not against the stock market in any way, shape, or form, but real estate as an investment has some built-in hedge features, when it’s managed properly.

You can see, here in the background, an article from Wealth Management, where they do a great coverage of the real estate industry. It’s just a look at publicly traded rates for the year being up 40 percent. The rest of the stock market wasn’t. Some individual stocks were better. Most were below the 40% mark. Why were these REITs as a group up 40%, year over year?

Well, to dig down into the article, the bottom line is most real estate, again when managed properly, will have built-in inflation hedges as a part of the lease. Every real estate lease should have that, which is typically multi-years, unless you’re dealing in a multi-family area where your leases are typically one year. Even then, your typical leases will go up every year, but your typical commercial lease will have built-in increases in rent and perhaps built-in increases in common area charges. So you automatically have a response to increased costs and increased market pressures, particularly in retail leases, where they may actually have a rent increase tied to the consumer price index.

So retailers, who’ve already been hammered massively by the pandemic, which comes on the heels of being hammered massively by online retailing, are now getting hammered again because we’ve just had–likely we’ll find out this week–a seven percent inflation. Last year, the last time it was reported, it was 6.8%, so they can be looking at their rents going up seven percent. Bad for the retailers, good for the landlords. But the landlord’s costs are also increasing. Prices of energy, prices of HVAC equipment and everything else, prices in petroleum, or if they need to repave their parking lot or use asphalt-based shingles or asphalt bay roofing, etc. Every cost category that a landlord has is also going up.

Still, properly managed real estate will have built-in reactions to increasing costs. That’s why real estate makes a great hedge in inflationary times. For another article that takes a look at this, check out the Huntsville Business Journal. We’d love to hear your response to this, so please leave us a comment on Youtube, Facebook, or LinkedIn, or contact us.

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