ACG Insights: All the REIT Moves

(Download the full report HERE)

Executive Summary

  • With the changes brought about during and in the aftermath of the pandemic, occupancy rates for commercial office space have decreased and may be a key reason that investors have questioned the prospects for Real Estate Investment Trusts (REITs) (Exhibit 1)
  • Historically, REITs were very exposed to the office sector, but they are increasingly representative of a much larger and broader opportunity set (Exhibit 2)
  • REITs often trade at a premium to their Net Asset Values (NAV), however, with the current overhang surrounding commercial real estate, many segments are trading at discounts to NAV (Exhibit 3)
  • REIT yields, typically higher than fixed income equivalents, are not as advantaged currently, but still offer a strong yield component (Exhibit 4)
  • REITs may also be well positioned for a future where inflation is higher than the past. Historically, REITs tend to do best when inflation is moderate (defined as between 2.5% and 6.0%) (Exhibit 5)


Similar to Tom Cruise’s character in All the Right Moves, Real Estate Investment Trusts (REITs) are looking for an opportunity to escape their past and transition into a brighter future. The post-COVID environment has acted as a cloud over the future of real estate investing due primarily to decreased demand for office space that looks unlikely to meaningfully improve, and more difficult financing conditions due to a rapid rise in interest rates from near-zero. It may be a big hurdle, but if property owners and lenders can adjust to a higher rate environment, depressed sentiment in the broader REIT market due to a problematic sub-sector may be an opportunity for investors to increase or initiate exposure to an asset class that has historically provided equity-like returns with low correlation to public equity markets.

Is a hybrid future already baked into valuations?

Many areas of commercial real estate maintained relatively high occupancy rates throughout and post-pandemic. Office occupancies have been the notable exception. The attention on this decline has, arguably, led to investors becoming more cautious across all segments rather than specifically those sectors most impacted by demand shortages. Diversified REITs were among the worst performing asset classes in 2022 and have failed to rebound alongside stock market indices so far in 2023. The question for future returns will be whether REITs continue to trade at depressed valuations, or whether investors can look past weakness in certain sectors that has seemingly infected the broader REIT universe. One argument in favor of the latter is that the REIT universe has become more diversified over time, and less dependent on the performance of sectors like office and retail that have been the most disrupted by COVID…

Download the full report HERE where we discuss

  • Broadening Opportunity Set in REITs
  • Premium / Discount to Net Asset Value and Forward Returns
  • Dividend Yield Component of Equity REITs
  • Yield of REITs vs. 10 Year Treasury
  • REITs vs. S&P 500 in different Inflation Regimes


  1. NAREIT/ FactSet
  2. NAREIT, Virtus
  3. NAREIT, FactSet, FRED
  4. American Century Investments, Data is 1972 -2022. Low inflation is less than 2.5%. Moderate is 2.5% to 6.0%. High is 6.0% and above.