REITs show mixed performance as capital challenges hit sentiments, but positive outlook provides relief

REITs showed mixed performance this week, as capital challenges facing the sector impacted sentiments but a positive outlook provided relief.

The FTSE Nareit All Equity REITs index rose slightly from last week, by 0.80%. Comparatively, S&P 500 was up by 0.39%.

The Real Estate Select Sector SPDR ETF index increased by 0.84% and the mortgage REITs index gained 2.28% on a weekly basis.

Recent bank failures are making the availability of capital for commercial real estate tougher, according to the National Association of Real Estate Investment Trusts.

Fitch Ratings lowered its 2023 U.S. REIT sector outlook to Deteriorating from Neutral on the tightened lending conditions.

Organic growth is slowing across the sector, and tighter capital markets are pressuring commercial real estate and sentiment.

But on a positive note, Lisa Kaufman, head of global solutions at LaSalle Investment Management, said during Nareit's REITweek: 2023 Investor Conference on June 6 that in 12-24 months, the equity market capitalization of the REIT index will be "materially higher" than it is today through a combination of acquisitions, new equity issuance and appreciation.

REITs will gain an attractive cost of capital in 2024 and grow as a result, Green Street EVP and Global Head of Advisory Dirk Aulabaugh said during the investor conference.

For the week ending June 9, here is a look at the subsector performance: