How resilient are REITs to a pandemic? The COVID-19 effect
| DOI | https://doi.org/10.1108/JPIF-06-2020-0065 |
| Published date | 09 July 2020 |
| Pages | 19-24 |
| Date | 09 July 2020 |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
| Author | Omokolade Akinsomi |
How resilient are REITs to a
pandemic? The COVID-19 effect
Omokolade Akinsomi
The School of Construction Economics and Management,
The University of Witwatersrand, Johannesburg, South Africa
Abstract
Purpose –Real estate investment trusts (REITs) are historically considered as attractive assets to investors
particularly as the underlying assets are properties which are income-producing. REITs also distribute
substantial amount of profits as dividends to shareholders. Stephen and Simon (2005) find that REITs in a
mixed asset portfolio of stocks and bonds enhance returns and reduce risk. This paper examines the role a
pandemic (COVID-19) plays in the performance of global REITs index and REIT sectors.
Design/methodology/approach –To examine the effects of COVID-19 on REITs, the year-to-date (YTD)
returns of global returns index and REITs sectors in the United States are observed and a comparative analysis
is employed from January 2020 to May 2020.
Findings –Based on a three-month return ending 22 May 2020, FTSE EPRA NAREIT index is the biggest
loser at 31.83% whilst the FTSE EPRA Asia–Pacific index has the lowest loss at 23.20%. The author
examines YTD returns which show disparities on the effect of COVID-19 on REIT sectors. The US market is
examined; most REIT sectors suffered big losses as at April 2020; the analysis reveals YTD returns for the top
three REIT sector losers are lodging/resort REITs (45.81%), retail REITs (41.16%) and office REITs
(22.63%). Data centre REITs are the only sector REITs with positive returns at 17.66%.
Practical implications –Most sector REITs during the pandemic have lost considerable value based on
YTD returns as at May 2020. Flight to quality is expected during this uncertain period to REITs such as data
REITs, grocery-anchored REITs and storage REITs. These REITs are not as adversely affected by COVID-19
in comparison to other REITs.
Originality/value–This paper identified the impact of COVID-19 on the performance of global REITs and US
sector REITs during the periods from January 2020 to May 2020.
Keywords COVID-19, Pandemic, Global REITs, Indices, Index returns, Crisis
Paper type General review
One of the critical things in this crisis we’ve been trying to get across... is that we have to throw
away the rule book. We’ve never seen this kind of crisis in our lives. Ana Bot
ın, Executive Chairman,
Santander.
The global REITs market and the COVID-19 pandemic
According to the World Health Organization (WHO), the first cluster of cases of the novel
coronavirus [1] was reported by the Wuhan Municipal Health Commission (China) in Wuhan,
Hubei province, on the 31 December 2019. On 11 March 2020, WHO categorized the
coronavirus as a pandemic.
Globally, 39 countries have enacted real estate investment trust (REIT) legislation, and the
market capitalization of REITs is US$1.7 trillion. As at 10 May 2020, all 39 countries with
enacted REIT legislations have recorded cases of COVID-19 in varying capacities.
The COVID-19 virus has infected more than 7.008m people with 402,709 deaths globally as
at 7 June 2020 [2]. To limit the spread of the virus, WHO recommended a number of activities
including social distancing whilst a number of countries implemented lockdown as well as
movement restrictions. This restriction of movements and its implementation has affected
the general economy as well as real estate and REITs adversely.
Table 1 shows the top REIT markets per continent; this includes their market
capitalization (US$) and weight (%) in the FTSE EPRA Global REIT Index; it also shows
COVID-19
effect REITs
19
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1463-578X.htm
Received 8 June 2020
Revised 10 June 2020
Accepted 10 June 2020
Journal of Property Investment &
Finance
Vol. 39 No. 1, 2021
pp. 19-24
© Emerald Publishing Limited
1463-578X
DOI 10.1108/JPIF-06-2020-0065
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