The public marketsÂ' ownership of real estate declined across most property types, even though public real estate companies increased their capital-raising activities, Prudential Real Estate Investors (PREI) said today as it released its annual public market commercial real estate penetration study.
PREI is the real estate investment and advisory business of Prudential Financial, Inc.
The declines in the share of commercial real estate owned by real estate investment trusts (REITs) and real estate operating companies (REOCs) ranged from a 0.3 percent decline for apartment properties to a 1.4 percent decline for retail mall properties, according to the report. Of six property types tracked by PREI, only office properties saw a gain in public ownership, with a slim 0.2 percent increase.
For the second straight year, REITs also outperformed the broader equity markets in the United States by a wide margin. Equity REITs delivered total returns of 14 percent, according to the NAREIT equity REIT index, well ahead of the 7.4 percent for private real estate, along with the negative returns for most major public market indices. The study considers properties in the United States that are at least 50% owned by REITs or REOCs.
'This trend illustrates strong cross-currents in the real estate business,' said Youguo Liang, managing director of research at PREI. 'Although property market conditions deteriorated, capital flows were strong as real estate, including public, private equity and debt instruments, became safe havens for investors looking for some shelter from the falling stock market and volatile bond market.'
But while the new interest in the sector led to intense competition for a few selected property types, falling interest rates allowed property owners to refinance their properties with hopes of weathering the market downturn, rather than facing an uncertain transactions market. The net result was a reduction in acquisition activity for public real estate companies.
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(source: Prudential)
