Real estate investment trusts (REITs) experienced significant gains in the stock market rally on Tuesday, following a less-than-expected inflation report. This year’s largest one-day gains were observed in various types of REITs, ranging from life sciences to office space, according to Dow Jones Market Data.
The reading of the Consumer Price Index for October provided relief regarding concerns about rising interest rates, which had been impacting the commercial real estate industry throughout the year. Investors interpreted this as a signal that the Federal Reserve would no longer pursue rate hikes.
Several REITs emerged as winners on Tuesday, including Vornado Realty Trust (Ticker: VNO), which saw a 15.4% increase, Alexandria Real Estate Equities (ARE), with an 11.7% gain, and Boston Properties (BXP), which rose by 10.7%. In comparison, the S&P 500 index enjoyed a 1.9% increase during the same day.
Vornado has experienced a year-to-date increase of 10.8%, while Alexandria and Boston Properties have seen declines of 27.7% and 16.1% respectively.
The Vanguard Real Estate exchange-traded fund (VNQ), a diversified fund that includes various REITs and real estate-related holdings, also saw a significant jump of 5.5%. However, this fund has experienced a decline of 6.3% over the course of the year.
According to Cedrik Lachance, Green Street’s director of research, Tuesday’s performance by REITs represents “a big relief rally in terms of where rates might settle and where property values might settle.” Higher rates have had a negative impact on commercial real estate shares, as investors worried about declining property values and difficulties with refinancing. However, recent developments have caused investors to reconsider these concerns.
A boost in confidence came from a deal announced on Tuesday involving Boston Properties. The company sold a 45% stake in two of its Boston life sciences properties to Norges Bank Investment Management for a significant sum of $1.66 billion. This transaction exceeded expectations, leading to improved perception of pricing in the market.
In addition to this positive development, investors in home builder stocks experienced notable gains on Tuesday. This can likely be attributed to the decline in the 10-year Treasury yield following the release of a report. Typically, mortgage rates tend to move in relation to the 10-year yield.
Furthermore, the recent inflation report also provided some encouragement for home buyers. Mortgage rates, as tracked by Mortgage News Daily, fell by 0.18 percentage point to 7.40% on Tuesday. It is worth noting that rates had previously been above 8% just last month.