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Investor shift in RE sectors – what are REITs signaling?


What are REITs all about?

Real estate investment trust (REIT) is a company that owns and operates or finances income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments – without having to buy, manage, or finance any properties themselves. REITs are highly regulated in most markets, mandating that most of the returns are distributed to the investors via dividends.

Two main types of real estate investment trusts are equity REITs and mortgage REITs. Equity REITs pool capital from investors to acquire, own and operate income-producing properties. Mortgage REITs, on the other hand, provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earn income from the interest on these investments. The majority of publicly-traded REITs in Europe and US, and the ones that are observed in this blog, are equity REITs.
Offering a good risk to return ratio and strong long-term profit potential, the last couple of decades saw growing popularity and inflow of capital in REITs. As it can be seen on the following graph, FTSE Nareit Equity REIT index  outperformed S&P 500 index in the period of 2002 – 2020. However, it should be noted that the comparison can always vary depending on the selected observed period.


Source: Colliers on,
* Total return includes price return and dividends

As shown in the graph above, in the observed period, a correlation between publicly listed REITs and stock market can be noticed. In terms of portfolio diversification, this represents a downside compared to direct private real estate investment.

Shock in 2020 

Publicly traded REITs can be a good indicator of investor expectations. As share prices of publicly-traded REITs factor in forward-looking performance, they can indicate the investor outlook on the expected market direction.

The year 2020 was, and probably will be for some time, a topic of many analyses. First quarter of 2020 brought hefty shock to European and global capital markets, as the World Health Organization declared the novel coronavirus (COVID-19) outbreak as a global pandemic on March 11, 2020. The high level of uncertainty caused turbulence in equity, fixed-income as well as real estate markets.

The sudden halt to world travel and tourism has led to unprecedentedly low occupancy rates in hotels. In contrast, measures to stay and work from home have vacated most global central business districts (CBDs). In addition, non-essential stores and shopping malls were closed during most restricted lockdowns and much of shopping shifted online, increasing demand for distribution centres and last-mile logistics. And, of course, REIT prices and yields reacted.

The following graph shows total returns by property sectors for FTSE Nareit Equity REITs in 2020. 

Source: Colliers on

As it can be seen from the graph, a strong drop was recorded in consumer-facing real estate sectors: retail, lodging / resorts and office. At the market's bottom in March 2020, some leading REITs in these sectors had lost 80% or more of their stock prices - even those with rock-solid balance sheets. Residential REITs also recorded overall negative returna. However, it is interesting to note that the single-family homes subsector performed positively, but the gain was outpaced by the strong negative return of the multi-apartment subsector.

On the other hand, real estate sectors that are not consumer-facing performed well during 2020. Infrastructure, industrial and data-centres all marked positive returns, while the data-sector recorded a total return of over 20%. 

Optimism in recovery in 2021 

Strong fiscal and monetary stimulus as well as the start of the vaccination campaign, were the main drivers of optimism that the global pandemic would be stopped in 2021. And once again, REIT prices promptly reacted. 

Retail, lodging / resorts and office REITs, trading well below their net asset values (NAV) and offering good yield opportunities in a zero-rate environment, rebounded in 2021. Online shopping, although practical, does not offer the same social experience as going to the mall. Nor does it offer casual F&B. At the same time, pent-up demand for travel has probably never been greater. Office REITs also partially recovered, although to a lesser extent. Remote work has shown some advantages and remains the main threat to the office sector in the long run. However, it still can't replace entirely vibrant office workplaces that provide collaboration and shape corporate culture.

The residential sector also rebounded on the tail of increasing home prices. Infrastructure, industrial and data-centres REITs continued growth from 2020, as it can be seen on the graph below, which shows total returns by property sectors for 2020 and year-to-date returns for April 2021. 

Source: Colliers on

Meanwhile in Croatia 

Although there are still no REITs or similar RE investment funds listed on the Croatian stock market, several commercial properties in Croatia are owned by REITs listed on the stock exchanges abroad (e.g. W. P. Carey, Hyprop Investments, Tower Property Fund). Being relatively small, Croatian RE market has some specific characteristics, but at the same time, some trends from the global market could also be observed in Croatia.

Industrial / logistics sector, similar to globally, is perceived as future-proof and with strong growth potential. Evidence can be found in numerous new developments, mostly in zones around Zagreb and in Kukuljanovo near Rijeka. Retailers continued expansion throughout 2020 and 2021. The most recent developments are owner-occupied big-boxes, mainly by food and DIY retail chains, while in terms of speculative stock, there has been an increased popularity of retail park schemes. 

Although many companies announced that employees will have the option to work remotely partly, the situation in the Zagreb office market is solid with high demand for A-class offices and limited availability of modern spaces. Demand in HTL sector is also strong and formed on the expectations of swift recovery of tourism in the coming seasons. Spread in pricing expectations between sellers and buyers has limited the number of total transactions. However, the largest transactions were closed on pre-Covid pricing. The pandemic impact can also be seen through the increased popularity of residential components in HTL products, such as second home residences in tourist resorts. Although there is still a great degree of uncertainty about the future, the limited number of opportunities on the market and low-rate environment put pressure on yields.  

Global pandemic initiated new and accelerated existing trends in the real estate industry. As emerging trends will surly continue to shape real estate in the coming period, these times ask for additional prudence from investors and the increasing responsibility of advisors.   


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Ivan Laljak

Senior Consultant, Valuation & Advisory Services


Ivan joined Colliers in June 2018 as a Junior Consultant in the Investment and Valuation Advisory Services department. He is currently Senior Consultant in Valuation and Advisory services where his main tasks include valuation (hotel, office, retail, industrial/logistics, land, residential), financial modeling and analysis, market research, preparation of various types of reports and studies (feasibility studies, highest and best use studies, etc.) as well as NPL portfolio valuation.

Along with VAS, Ivan works in Capital Markets department where he participates in advisory (sell or buy-side) for investment transactions of income-producing properties & land for development. His tasks include market research, preparation of marketing materials (teasers and information memorandums), cash flow and asset analysis and communication with clients and investors.

Prior to joining Colliers and during his studies, Ivan worked, in financial industry and corporate finance. Ivan holds Master degree from the Faculty of Economics and Business, University of Zagreb. He also gained “Financial Modelling and Valuation Analyst” certificate at Corporate Finance Institute. Ivan passed CFA Level I and is Level II candidate.

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