In the post-crises era, REITs (Real Estate Investment Trusts) profits are driven by low-cost debt capital and high commercial real-estate values. Within REIT segments, office and retail commercial real estate values have seen slower growth in construction compared to warehouse and residential.
“Real-estate investment trusts efforts to develop large projects have maintained a supply of commercial real estate in check, feeding into the sector’s recovery” said Keith Knutsson of Integrale Advisors.
During 2008, excessive development activity weakened REITs’ credit profiles, but have since been steady, with growth in total development activity leveling off in the recent years. Throughout the post crisis period of the business cycle, REITs have demonstrated exceptional performance, given the sector has historically low-cost debt capital and record high commercial real-estate value environment.
Development volumes from office REITs have slowed due to a lack of employment growth in businesses that take up office leases as well as the shift of traditional cubical space to shrinking desk space in an effort to promote collaboration in the workplace.
The U.S. still faces an oversupply of retail real estate, therefore the focus is set on reassessing existing buildings rather than new construction. In addition, there has been more development activity in the multifamily and industrial real-estate sectors. In the residential segment, analysts have pointed out that the overwhelmingly increasing supply will exceed demand in certain parts of the country, potentially hindering rent growth.