The real estate sector is in the midst of an impressive worst-to-first renaissance this year, rebounding from its 2020 coronavirus swoon. The ALPS Active REIT ETF (NASDAQ: REIT) has come along for the ride.
One of the real estate segments most harshly punished last year by the pandemic was office real estate investment trusts (REITs). That makes sense because the global health crisis forced a slew of companies across a variety of industries to permit staffers to work from home. As a result, offices went months without being used and some companies, even glamorous commercial real estate markets, simply abandoned leases.
That speaks to the advantages of REIT, which is an actively managed exchange traded fund, meaning its managers can limit or avoid office REIT exposure. Conversely, many traditional passive REIT ETFs are heavily allocated to office REITs.
Nevertheless, office REITs may prove more resilient than previously expected, even as companies delay return-to-office directives due to the delta variant of COVID-19. That could mean REIT could seek out more office REIT exposure as the recovery materializes.
“Temporary RTO delays are not driving lease terminations or a material shrinkage of office occupier space needs,” said Fitch Ratings. “The recovery of income generated from ancillary services such as employee parking and other amenities will be further delayed but is not a material credit effect. Most companies are planning to return employees to the office full time or transition to a hybrid work structure with physical office space needs that result in an improved work environment, despite successful work-from-home (WFH) arrangements during the pandemic.”
As noted above, one of REIT’s primary benefits is that it’s actively managed so it can be overweight strong real estate segments while dodging some of the weaker links. Another positive for the ALPS fund is that rent collection across nearly all REIT segments, including office REITs, remains strong.
“Rent collection has been fairly resilient, even with widespread remote work during the pandemic, due to tenants maintaining ongoing operations and long-term leases with expirations of generally less than 10% per annum over the next few years,” according to Fitch.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
