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Is Real Estate Value an Oxymoron?

Our commercial real estate outlook viewed through real estate investment trusts.

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Depending on the measure used, residential real estate has been losing value for nearly three years and shows few signs of reversing course. Now, as history predicted, commercial real estate is set to follow suit. In this article, we'll explore the various head winds facing CRE investors, primarily through the eyes of publicly traded equity real estate investment trusts with additional support from various capital market and macroeconomic data.

At Morningstar, we have one of the broadest equity REIT coverage universes, including 70 companies spread among every major property type, putting us in good position to survey the situation from the top down and bottom up. Our current take is that while certain property types should fare substantially worse than others, we expect cash flow to stagnate or decline across all of them. In order of severity, here's our outlook from worst to bad: hotels, retail, office, industrial, apartment, and health care. There's a long list of catalysts for this forecast, but the strongest head winds include excessive leverage, tight credit markets, excess property supply, plummeting property demand, reduced consumer spending, and strained government budgets.

Joel Bloomer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.