CRE to Benefit from GICS Status

Kevin May Director, GRS Group (310) 614-9329kmay@grs-global.com

Kevin May
Director, GRS Group
(310) 614-9329
kmay@grs-global.com

Commercial real estate firms that are publicly traded will now garner even more interest from investors. The asset class was recently named the eleventh Global Industry Classification Standard (GICS), which means that CRE will be treated as its own entity in the S&P 500 and the Russell 2000, setting it apart from financial institutions.

Among the firms that are included in this measure are publicly traded REITs and development and management companies specializing in commercial real estate. Now that it is set apart, it will reportedly gain more attention, and capital, than previously, as investors look to diversify their portfolios.

REIT returns since 2000 were up 12 percent annually on average, meanwhile high-yield bonds only rose 7.9 percent, while stocks’ increases were at 4.1 percent. NAREIT also reportedly estimates that equity REITs have a market cap of $2 trillion.

Plus, the investor appetite for commercial real estate has been on fire the last few years. The reasons for this include: improved U.S. employment, continued low capitalization rates, increased foreign investment in the industry and a boost in foreign investment in domestic assets.

There are several markets that are attractive right now and don’t seem to be slowing down, such as virtually any CRE asset in the San Francisco metro area, the Dallas office market, and South Florida, among many others. Even secondary markets are seeing some major growth, like Portland, Ore.; Raleigh, N.C.; and Columbus, Ohio.

Another driver is urban development, which many companies shied away from in years past. Both the millennial and baby boomer generations have more of a desire to flock to these areas because they can walk, or take public transportation, to where they live, work and go for entertainment. The many new developments and renovations due to the increased demand in urban locales for these types of assets are sure to give investors strong returns.

What the GICS classification does is give the commercial real estate industry even more clout, when it is already a strong asset class on a roll.

Speculation about interest rates increasing has hurt REIT stocks of late, but that is how the business works, and because of GICS, interest, and education about the industry should only increase.

 

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