REITs in a world of WFH + social distancing

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leftcoaster
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REITs in a world of WFH + social distancing

Post by leftcoaster » Fri May 22, 2020 12:42 pm

What thoughts do people have about the future of REIT properties in a world where major corporations (Facebook, Twitter) are anticipating indefinite work from home arrangements and greatly reduced office occupancy.

I guess the occupancy defined by the tenant doesn't change the cost of the lease, so perhaps it's a wash?

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Leif
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Re: REITs in a world of WFH + social distancing

Post by Leif » Fri May 22, 2020 1:21 pm

I was wondering about this as well. While the yield in the current environment is good the prospects long term seem to me to be diminished.

mrmass
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Re: REITs in a world of WFH + social distancing

Post by mrmass » Fri May 22, 2020 1:27 pm

There more than office reits out there. Data centers, and industrial could become stronger with Amazon increasingly supplying more goods. Gotta store all those goods and data someplace.

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Re: REITs in a world of WFH + social distancing

Post by bling » Fri May 22, 2020 4:41 pm

as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.

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Re: REITs in a world of WFH + social distancing

Post by retired@50 » Fri May 22, 2020 6:16 pm

leftcoaster wrote:
Fri May 22, 2020 12:42 pm
What thoughts do people have about the future of REIT properties in a world where major corporations (Facebook, Twitter) are anticipating indefinite work from home arrangements and greatly reduced office occupancy.
I suppose in the short term, occupants might seek to re-negotiate leases, or let them expire if they go out of business. But that might just make room for new businesses that still find value in having an office. Vacancy rates might go up for a few years. Real estate is a relatively slow moving market in the sense that eventually a property will be put to its "highest and best use" but this doesn't happen quickly. This could take a decade or two given the huge number of corporate office parks there are. I'm having a hard time imagining an office park getting torn down anytime soon.

Regards,
This is one person's opinion. Nothing more.

annu
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Re: REITs in a world of WFH + social distancing

Post by annu » Fri May 22, 2020 7:24 pm

I expect international reits like vnqi to have an edge. More companies are realizing they can have worker work remotely, and that it is cheaper if the worker works remotely from somewhere much cheaper, and maybe in an office.

Many teams had to show their value in last few months and suddenly work they did from home was comparable to normal output. This is all the time insisting, the team had to be in US or local.

Bow companies have data to show, that is not the case, and the number crunchers are getting ready with what to do, to make remaining quarters bearable for the company results

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leftcoaster
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Re: REITs in a world of WFH + social distancing

Post by leftcoaster » Fri May 22, 2020 7:42 pm

bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Interesting that you called out stadiums and restaurants. Both of those and especially the latter are in real jeopardy as long as social distancing continues.

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Re: REITs in a world of WFH + social distancing

Post by bling » Fri May 22, 2020 8:41 pm

leftcoaster wrote:
Fri May 22, 2020 7:42 pm
bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Interesting that you called out stadiums and restaurants. Both of those and especially the latter are in real jeopardy as long as social distancing continues.
it's temporary. a vaccine will eventually be made and the lockdown will end.

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leftcoaster
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Re: REITs in a world of WFH + social distancing

Post by leftcoaster » Fri May 22, 2020 9:22 pm

bling wrote:
Fri May 22, 2020 8:41 pm
leftcoaster wrote:
Fri May 22, 2020 7:42 pm
bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Interesting that you called out stadiums and restaurants. Both of those and especially the latter are in real jeopardy as long as social distancing continues.
it's temporary. a vaccine will eventually be made and the lockdown will end.
Yes but the restaurants may be wiped out by then. U shaped Recovery or perhaps something entirely new.

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Re: REITs in a world of WFH + social distancing

Post by bling » Fri May 22, 2020 9:54 pm

leftcoaster wrote:
Fri May 22, 2020 9:22 pm
bling wrote:
Fri May 22, 2020 8:41 pm
leftcoaster wrote:
Fri May 22, 2020 7:42 pm
bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Interesting that you called out stadiums and restaurants. Both of those and especially the latter are in real jeopardy as long as social distancing continues.
it's temporary. a vaccine will eventually be made and the lockdown will end.
Yes but the restaurants may be wiped out by then. U shaped Recovery or perhaps something entirely new.
how's it any different from normal circumstances? restaurants rise and fall all the time. covid is obviously very bad luck for the struggling restaurants as it will likely put them out of business, but when the economy opens back up, another entrepreneur will open a restaurant. food on the lower end of the scale can be delivered, but there's no replacement for fine dining at a restaurant in person.

all that being said, what makes you think all of this isn't already priced into REITs? everyone can see everyone and everything staying home right now.

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Re: REITs in a world of WFH + social distancing

Post by Valuethinker » Sat May 23, 2020 9:06 am

bling wrote:
Fri May 22, 2020 8:41 pm
leftcoaster wrote:
Fri May 22, 2020 7:42 pm
bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Interesting that you called out stadiums and restaurants. Both of those and especially the latter are in real jeopardy as long as social distancing continues.
it's temporary. a vaccine will eventually be made and the lockdown will end.
The record for vaccines for coronaviruses is very poor. AFAIK no one has ever produced one.

A particular issue is that the human immunity to cv19 may just not last very long. Months only. Vaccines work by provoking an immune response but what if that response is insufficient

Bottom line is we should not count on a vaccine arriving quickly.

Before the post war era epidemics were fought w isolation and societal control. Not drugs and vaccines.

We may, again, be in that world.

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Kenkat
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Re: REITs in a world of WFH + social distancing

Post by Kenkat » Sat May 23, 2020 9:18 am

Another factor to consider - while more people will work from home, for the remaining people that do need to be in an office type setting, they will require a lot more space than previously, due to distancing requirements. So it remains to be seen what the overall impact will be.

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leftcoaster
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Re: REITs in a world of WFH + social distancing

Post by leftcoaster » Sat May 23, 2020 9:26 am

Kenkat wrote:
Sat May 23, 2020 9:18 am
Another factor to consider - while more people will work from home, for the remaining people that do need to be in an office type setting, they will require a lot more space than previously, due to distancing requirements. So it remains to be seen what the overall impact will be.
That kind of dedensification will have a lasting effect on food service, dry cleaning, etc. fewer customers is fewer customers.

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Re: REITs in a world of WFH + social distancing

Post by Blue456 » Sat May 23, 2020 12:18 pm

leftcoaster wrote:
Sat May 23, 2020 9:26 am
Kenkat wrote:
Sat May 23, 2020 9:18 am
Another factor to consider - while more people will work from home, for the remaining people that do need to be in an office type setting, they will require a lot more space than previously, due to distancing requirements. So it remains to be seen what the overall impact will be.
That kind of dedensification will have a lasting effect on food service, dry cleaning, etc. fewer customers is fewer customers.
I don't think food services and dry cleaning are going away. People still like to have someone else do their laundry and cooking. There will be just more eating at home and delivery than before.

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Re: REITs in a world of WFH + social distancing

Post by bling » Sat May 23, 2020 12:24 pm

leftcoaster wrote:
Sat May 23, 2020 9:26 am
Kenkat wrote:
Sat May 23, 2020 9:18 am
Another factor to consider - while more people will work from home, for the remaining people that do need to be in an office type setting, they will require a lot more space than previously, due to distancing requirements. So it remains to be seen what the overall impact will be.
That kind of dedensification will have a lasting effect on food service, dry cleaning, etc. fewer customers is fewer customers.
if demand is less overall, it would affect everything from the farm to your plate.

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Re: REITs in a world of WFH + social distancing

Post by PurpleArc » Sat May 23, 2020 12:43 pm

bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Out of curiosity, how's your REITs portfolio like?

bling
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Re: REITs in a world of WFH + social distancing

Post by bling » Sat May 23, 2020 12:47 pm

PurpleArc wrote:
Sat May 23, 2020 12:43 pm
bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Out of curiosity, how's your REITs portfolio like?
all of it is in vanguard's fund (VGSLX/VNQ).

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Re: REITs in a world of WFH + social distancing

Post by PurpleArc » Sat May 23, 2020 12:49 pm

bling wrote:
Sat May 23, 2020 12:47 pm
all of it is in vanguard's fund (VGSLX/VNQ).
Same, VNQ all the way.

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Re: REITs in a world of WFH + social distancing

Post by abuss368 » Sat May 23, 2020 2:38 pm

Plenty of very good REIT subsections!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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leftcoaster
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Re: REITs in a world of WFH + social distancing

Post by leftcoaster » Sat May 23, 2020 3:27 pm

bling wrote:
Sat May 23, 2020 12:24 pm
leftcoaster wrote:
Sat May 23, 2020 9:26 am
Kenkat wrote:
Sat May 23, 2020 9:18 am
Another factor to consider - while more people will work from home, for the remaining people that do need to be in an office type setting, they will require a lot more space than previously, due to distancing requirements. So it remains to be seen what the overall impact will be.
That kind of dedensification will have a lasting effect on food service, dry cleaning, etc. fewer customers is fewer customers.
if demand is less overall, it would affect everything from the farm to your plate.
Consumption will be the same but the restaurant near your office will bet half as much traffic if the offices are half empty.

People will eat where they are. They just won’t be as densely located.

bling
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Re: REITs in a world of WFH + social distancing

Post by bling » Sat May 23, 2020 3:52 pm

leftcoaster wrote:
Sat May 23, 2020 3:27 pm
bling wrote:
Sat May 23, 2020 12:24 pm
leftcoaster wrote:
Sat May 23, 2020 9:26 am
Kenkat wrote:
Sat May 23, 2020 9:18 am
Another factor to consider - while more people will work from home, for the remaining people that do need to be in an office type setting, they will require a lot more space than previously, due to distancing requirements. So it remains to be seen what the overall impact will be.
That kind of dedensification will have a lasting effect on food service, dry cleaning, etc. fewer customers is fewer customers.
if demand is less overall, it would affect everything from the farm to your plate.
Consumption will be the same but the restaurant near your office will bet half as much traffic if the offices are half empty.

People will eat where they are. They just won’t be as densely located.
then REITs fall in one area and go up in another. unless restaurants all of a sudden start cooking out of their home kitchen and deliver, they will still need some commercial place to put all the fancy restaurant equipment.

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Re: REITs in a world of WFH + social distancing

Post by bling » Sat May 23, 2020 4:02 pm

https://www.reit.com/data-research/reit ... -subsector

all in all, office + retail only make up 17% of the REIT market by cap weight.

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Re: REITs in a world of WFH + social distancing

Post by abuss368 » Sat May 23, 2020 5:38 pm

annu wrote:
Fri May 22, 2020 7:24 pm
I expect international reits like vnqi to have an edge. More companies are realizing they can have worker work remotely, and that it is cheaper if the worker works remotely from somewhere much cheaper, and maybe in an office.

Many teams had to show their value in last few months and suddenly work they did from home was comparable to normal output. This is all the time insisting, the team had to be in US or local.

Bow companies have data to show, that is not the case, and the number crunchers are getting ready with what to do, to make remaining quarters bearable for the company results
Be careful. Internationally speaking, the REIT structure, as known in the US, is rare. Most international companies are REOC and not REITs. Some of the REITs international, while considered a "REIT" may not be the same as the US - may not have to pay out 90% of income and may not be legally structured the same.

I think this is why the performance difference of US REIT compared to International REOC is very wide.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: REITs in a world of WFH + social distancing

Post by abuss368 » Sat May 23, 2020 5:40 pm

The REIT structure is not going anywhere in the US. May be struggling but it will adapt and overcome. If anything, I recall when REITs were $300 Billion and then hit $1 Trillion. I believe they were recently $3 TRILLION!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: REITs in a world of WFH + social distancing

Post by unclescrooge » Sat May 23, 2020 5:42 pm

bling wrote:
Fri May 22, 2020 8:41 pm
leftcoaster wrote:
Fri May 22, 2020 7:42 pm
bling wrote:
Fri May 22, 2020 4:41 pm
as someone who has a large REIT allocation i've also thought about this a lot. in the end, i'm staying the course. here's what i'm thinking.

1) as others have mentioned, REITs is more than just office space. all the people who WFH will continue to buy stuff, and all that stuff needs to be stored somewhere. certain "experiences" cannot be replaced (stadiums, restaurants, etc.) so that will continue to do well. people still need places to live.
2) recency bias makes us dislike REITs because they've dropped more than total US, but they've actually done better than small caps and ex-US.
3) since 2010, REITs have returned a respectable ~9.5% CAGR with a correlation of 0.69. small cap value has returned ~8.3% with a correlation of ~0.95.
Interesting that you called out stadiums and restaurants. Both of those and especially the latter are in real jeopardy as long as social distancing continues.
it's temporary. a vaccine will eventually be made and the lockdown will end.
But the future for office building and malls will be different now. The question is how different?

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Re: REITs in a world of WFH + social distancing

Post by unclescrooge » Sat May 23, 2020 5:44 pm

leftcoaster wrote:
Fri May 22, 2020 12:42 pm
What thoughts do people have about the future of REIT properties in a world where major corporations (Facebook, Twitter) are anticipating indefinite work from home arrangements and greatly reduced office occupancy.

I guess the occupancy defined by the tenant doesn't change the cost of the lease, so perhaps it's a wash?
I reduced my allocation from 6% to 3%. Currently that 3% is in aggregate bond index but I may shift it to gold until this virus shakes out.

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Re: REITs in a world of WFH + social distancing

Post by Gustav » Sat May 23, 2020 6:42 pm

I‘ve considered many of the same factors and also the fact that historically, REITS have trailed the direction of the equities by several months. At the beginning of the year REITS were approximately 7% of my holdings. Two months ago I moved that money to a guaranteed investment (TIAA SRA with no withdrawal or transfer limitations) for the time being. I can go back into TIAA Real Estate at any time. It seemed prudent at the time. We shall see...

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Re: REITs in a world of WFH + social distancing

Post by annu » Sat May 23, 2020 10:06 pm

abuss368 wrote:
Sat May 23, 2020 5:38 pm
annu wrote:
Fri May 22, 2020 7:24 pm
I expect international reits like vnqi to have an edge. More companies are realizing they can have worker work remotely, and that it is cheaper if the worker works remotely from somewhere much cheaper, and maybe in an office.

Many teams had to show their value in last few months and suddenly work they did from home was comparable to normal output. This is all the time insisting, the team had to be in US or local.

Bow companies have data to show, that is not the case, and the number crunchers are getting ready with what to do, to make remaining quarters bearable for the company results
Be careful. Internationally speaking, the REIT structure, as known in the US, is rare. Most international companies are REOC and not REITs. Some of the REITs international, while considered a "REIT" may not be the same as the US - may not have to pay out 90% of income and may not be legally structured the same.

I think this is why the performance difference of US REIT compared to International REOC is very wide.
Thanks. I did that as we have home here, so thought will do international only, so have VNQI(vanguard international reit).

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