Will Coronavirus Pandemic Affect REIT Stocks?


In the wake of the COVID-19 situation, a lot of sectors see a downfall, and almost everyone is concerned about the impact of economic destruction that would follow. The real estate markets are very volatile now, and investors have started to pull back from their investments. Interestingly, just like any other depression times in history, Coronavirus pandemic too has led to newer opportunities.

While some investors are laying back and pulling back on their investments, some of them are hunting for opportunistic plays, looking at REITs to buy now, analyzing their best return REITs. It’s classic – we tried to make lemonade from the lemons we had scenario and how all of this is going to play out and turn out, in the long run, is something that we can only wait and watch.

Has Coronavirus pandemic affected the REIT stocks? A simple answer to this would be yes. But, to what extent it has, and how is this going to impact individual investors must be answered in the light of many related concerns.

However, it is interesting to note that the negative sentiment has already seeped into the private commercial real estate investment sector as the uncertainty of Coronavirus pandemic strikes the markets, making them more volatile than ever before, and the impact of the same has stopped many commercial real estate deals in tracks.

REIT stocks are down today, and answering why are REIT stocks down today comes down to understanding the volatility of the markets and the uncertainty of the impending COVID-19 situation. Potential investors are more than ever confused about why are REIT stocks dropping? Why are REIT stocks down today? Are you trying to base their further investment decisions? Here are a few possible answers to why REIT stocks are going down?

  • The investor confidence in REITs has been shaken – In the situation of crises, collective sentiments of how individual investors respond to the situation determines a great deal about how things are going to turn out. The uncertain of the Coronavirus Outbreak have collectively lowered the investor confidence in the REITs, contributing, if not leading, to the REIT stocks dropping by the day.
  • The impact of Coronavirus pandemic is hitting all asset classes – It is not only the real estate sector that is taking the hit of COVID-19 epidemic but all the asset classes put together. There is an ongoing exogenous, abrupt, and a severe shock to the economy, which has led to the downfall of the performance of many asset classes, and REIT stocks were not ones to escape this fate.
  • The public real estate firms have been struck too – The fact that the general real estate firms have been truck, despite the fact that these stocks are considered to be safer bets, especially during the times of uncertainty, is a big tell that the private real estate investment sector will see a significant downfall too. It’s a chain effect, and REITs have consequentially seen severe destruction also. Public and private sectors, at the end of the day, go hand in hand, and one’s performance will always have a significant impact on the other. In a nutshell, whatever happens in the public stock market will have a corresponding effect on the private sector sentiments.
  • As a general response, people are going to take their time and step back – As a public response to an impending COVID-19 outbreak that still has clouds of uncertainty revolving it, it is only shared for a majority of the investors to not act actively and lay back unless there’s a desperate must-buy or must-sell situation. And this is precisely what’s been happening in the current real estate markets too, where people are neither seeking out to sell their stocks or to buy new ones. In other words, most investors are just “waiting for the storm to pass” without jumping into hasty decisions of buying or selling their stock. A laid-back approach towards the whole real estate investing is what is contributing to the stooping REIT stocks.

These are some primary reasons that have caused the REITs stocks to stoop down, and it is not shocking news to know that Real Estate Stocks will enter a moderate downtrends season for some time now. How long would the markets take to get back in shape is a question that cannot be answered with certainty promptly?

One thing we can be particular about is that the Coronavirus pandemic is going to have a long and an impending impact on the real estate markets and the REITs sector, for months or even years to come. As a good majority of the investors stick to the principle of “hold your stocks until the storm passes,” the number of commercial real estate transactions itself is on a constant downfall.

While it is not possible to predict the upcoming real estate and REIT trends for the second half of 2020 with certainty, here are some trends investors can keep in mind before taking any investment decisions for months to come:

#1 – Multi-family property landlords and other single-family property landlords should most probably expect a downfall in their rental income

With a significant economic downfall, most tenants are likely to lose their jobs or see losses in their businesses, leaving them with no income to pay up their due rents on time. This means that the residential real estate sector will see a significant hit, with landlords having no or reduced rental income. Finding new tenants who could probably pay up their rents on time amidst a pandemic situation sounds somewhat impossible too.

#2 – Property or homeowners might feel the pain too, as there’s a risk of losing their homes as collaterals

Due to the economic downfall, many homeowners are at the risk of losing their jobs also, as many big companies and employers are shedding off their employees to balance out the economic slack. Thus, these homeowners run a more significant risk of defaulting on their mortgage payments, which might lead them to lose their properties to banks, even when the government has rolled out quite a lot of relaxations on loan repaying terms.

#3 – Companies that own and lease retail properties are going to take a massive blow too

With the remote working trend taking over, lesser and lesser number of people are commuting, leading to a downsize in the name of customers; any retail shop would receive. Thus, not only are these retail companies are in danger of losing their income source, but also the companies that own and lease these properties. In a commercial real estate scenario, owning and renting out of retail spaces is a significant part of commercial investments, and this sector is in for a huge downfall. REITs that have invested in such commercial establishments will be affected by the corresponding downfall.

#4 – The industrial real estate sector cannot escape the pain either

With the commercial retail spaces seeing a downfall, the industrial spaces like factories and spaces for fabrication are going to witness a potential downfall too. The economic downfall and contraction will lower the demand for factory and storage spaces, thus lowering the returns from the REITs that are involved with the industrial real estate sector.

The REITs that are most probable to pass these testing times

While most types of REITs are probably going to see a potential downfall and impending downtrends, it is very interesting to note that the healthcare REITs are probably going to prosper in this environment. Ask us why? In the wake of the COVID-19 pandemic, the capital is flooding into the health care sectors and medical practices, which are either contributing towards fighting the pandemic or are acting as isolation or quarantined wards. Thus, health care REITs are going to perform better as a general rule. However, the return on these health care REITs is still uncertain, although these REITs are currently doing well, better than the other REITs at the least.

Final Words

The real estate sector and the REITs, in general, will suffer prolonged downturns and downfall as a result of the COVID-19 outbreak. However, certain subgroups have the potential to prosper in these adverse environments. While it is hard to say if this is a good time to actively indulge in buying or selling off of REIT stocks, as a matter of general rule and the law of averages, the safe bet would behold the stocks and wait for things to play out and unfold in due course of time.

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