Real estate stocks to watch: Post-pandemic winners and losers

To describe the US real estate market as diverse would be an understatement. According to the National Association of Real Estate Investment Trusts (NAREIT), the country has 13 different real estate sectors including retail units, industrial units, housing and residential real estate.

It’s undeniable that these sectors had a very different year during the pandemic, as stores closed and vacancies rose, while logistics and retail space had a record year, according to JILL, a real estate services company.

Given such a complex post-pandemic picture, what are the risks and benefits of investing in real estate? And which real estate stocks to watch out for?

“Skewed” effect

The US housing market has proven resilient in the face of the pandemic, and fears of a housing crash like the one that followed the 2007-2008 financial crisis have proven unfounded.

Figures from JLL show that US real estate volume slumped from $ 400 billion in 2007 to below $ 100 billion in 2009 when that crisis erupted. The Covid-19 pandemic had a much more subdued impact – although U.S. real estate investment volumes fell in 2020, they have rallied sharply this year.

Resilient totals hide what analysts at PwC refer to as the “one-sided” impact on real estate. Industrial real estate is experiencing increasing demand, just as retail and hotel real estate are facing a more uncertain future.

Are you reaching whole new heights?

With the pandemic requiring us to work, shop and stream from home, it’s not surprising that some sectors outperformed others in 2020.

The logistics sector had a record year, with the rise in online shopping pushing warehouse vacancy rates below 5% in the US. Self storage also achieved a record performance, as did apartment buildings, whose rents reached record highs in large parts of the United States.

Data centers and telecom towers benefited from soaring e-commerce sales and streaming demand, with stocks like American Tower and Crown Castle hitting record highs over the course of the pandemic.

According to a study by PwC, listed real estate investment trusts (REITs) invest in alternative real estate sectors such as science buildings, specialist warehouses and student dormitories.

Record-low interest rates also create a favorable environment for real estate investments and increase the demand for shares in the real estate industry. Low interest rates keep real estate financing costs down and can make dividend payments on real estate investment trusts (REIT) stocks more attractive than interest on savings accounts.

“In a generally still low interest rate environment combined with renewed demand for office and retail space, investor pursuit of yield and moderate valuations could provide a strong tailwind for the sector,” wrote David Kastner, Senior Investment Strategist at Charles Schwab, in a note.

Shaky foundations?

But some of the pillars of the real estate market are buckling under the effects of the pandemic. Global office lease volume is 25% lower than in Q3 2019, and retail is hard hit. As online shopping increased, brick-and-mortar stores were also closed.

“The pandemic has accelerated the long slide in the retail property sector, with store closings and vacancies rising. The only exceptions are grocery centers, dollar stores, and home improvement retailers, all of which are thriving, ”according to a study by PwC.

“Unsurprisingly, the office sector is in the midst of a major upheaval – with very different results depending on the location and whether a building has flexible floor plans and better ventilation systems. Nevertheless, vacancies are likely to continue to rise. ”

Could demand for retail and office space remain subdued in the long term given the still high Covid-19 cases in the US? A survey by PwC found that 55% of industry respondents did not expect a return to pre-pandemic activities in 2022.

When the US Federal Reserve hinted that rates could rise in 2022, Charles Schwab’s David Kastner identified a faster-than-expected rate hike as a major risk to the sector due to the impact on financing costs. The dividend yields on real estate stocks would also become less attractive if interest rates rose.

Real estate stocks in mind

The pandemic has hit retail, office space and the hospitality industry hard. Perhaps unsurprisingly, the top four US real estate companies operate in alternative real estate sectors, from leasing communication towers to warehouse space.

Below is a list of real estate stocks ranked by largest market capitalization as of November 24, 2021. Could these be the real estate stocks to watch out for?

American tower

American Tower Corporation (NYSE: AMT), founded in 1995, is one of the largest global REITS. It operates almost 220,000 communication locations internationally. American Tower is unusual when it comes to providing real estate in the form of communication towers to tenants such as cellular operators.

American Tower predicts that the average monthly smartphone data will increase significantly worldwide between 2021 and 2026. The company wants to strategically position itself for success as the demand for 5G grows.

Prologis

Prologis (NYSE: PLD) specializes in providing logistics real estate such as warehouses and laboratories. The company operates in 19 countries and offers its customers services primarily in the business-to-business and retail fulfillment sectors.

Prologis customers include Amazon, DHL, FedEx and Home Depot. An estimated $ 2.2 trillion in goods flowed through the company’s distribution centers in the third quarter of 2021.

Crown lock

Crown Castle International (NYSE: CCI) provides wireless infrastructure broadband, broadcast and mobile communications. Crown Castle operates over 40,000 cell towers and 80,000 miles of fiber optic cable.

Crown Castle also wants to position itself to further develop its deployment of 5G, smart city technologies and the Internet of Things (the use of wireless technology in homes, wearables, cars and devices).

Public storage

Public Storage (NYSE: PSA) is the world’s largest owner, operator, and developer of self-storage facilities with over 2,500 facilities in the United States.

In a presentation to shareholders in November, Public Storage announced that it would expand its digital offering, including digital access systems for real estate, digital locks, smart cameras and security.

Simon Property Group

Simon Property Group (NYSE: SPG) is a REIT operating shopping, dining, entertainment, and mixed-use destinations around the world.

In partnership with Authentic Brands Group, the company has acquired several high profile retail brands since 2020, including Forever21, Brooks Brothers, Lucky Brand Jeans and JC Penney.

FAQ

Are Real Estate Stocks a Good Buy?

The picture remains very mixed for real estate stocks, with sectors such as warehousing and self-storage performing well while demand for office space and retailing is stalling.

As always, your investment choice will depend on your portfolio, your investment goals and your risk attitude. You should never invest more than you can afford to lose.

Which real estate stocks to buy

There are thirteen different real estate sectors in the United States, including retail, industrial, housing, and residential, according to the National Association of Real Estate Investment Trusts (NAREIT).

Due to the diversity of the industry, the real estate industry offers a wide range. Your choice between real estate companies on the stock exchange will depend on the needs of your portfolio.

Read more: Railroad stocks to watch as international trade rebounds

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