REITs ‘not out of the woods yet’ but easing of inflation offers respite

UOB Kay Hian noted the easing of US core inflation to 4.9% in April 2022.

The real estate investment trusts (REITs) could expect some respite as inflationary pressures relax, specifically, core inflation in the US, financial analyst, UOB Kay Hian, said in its report.

It noted that the US personal consumption expenditures core inflation may have peaked at 5.3% in February 2022 and it eased 0.3 percentage points month-on-month to 4.9% in April 2022. This decline was on the back of a decrease in new cases of Omicron variant, which prompted the reopening of the economy.

The easing of restrictions in April 2022 also benefited REIT market sectors including hospitality, retail, and office.

It said Ascott Residence Trust had benefited from countries with large domestic markets such as the US, the UK, Japan, and Australia.

UOB Kay Hian also said commercial real estate could be an important hedge versus inflation. This means landlords could increase rents to keep abreast of the rising prices of goods and services.

“Landlords’ ability to pass higher rents to tenants depends on fundamental factors, such as the location of properties, demographics, migration trends, demand/supply dynamics, and vacancy rate,” the analyst said.

But it still noted the risks of geopolitical tensions such as the Russia-Ukraine conflict.

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