The real estate sector is poised to be the second-best performer among S&P 500 sectors this year, behind only energy.
Some market participants are preparing for real estate investment trusts (REITs) to retreat next year, and the conventional wisdom, at least for today, is that it’s unlikely that the group repeats its 2021 showing in 2022. The other side of that coin is the thought that investors shouldn’t be running to leave real estate because there are some strategies that could be winners in the new year.
Consider the Goldman Sachs Future Real Estate and Infrastructure Equity ETF (GREI). Having debuted last month, GREI is one the newest real estate ETFs. It could also prove appropriate for investors looking to maintain some exposure to the real estate sector in 2022.
“Concerns about the omicron variant of the Covid-19 virus already are dampening hopes that millions of people who have been working from home throughout the pandemic will return to offices in January. REIT shares, like those of numerous other companies, also could face a bumpy ride in 2022 from inflation and rising interest rates,” reports Peter Grant for the Wall Street Journal.
In what may be a challenging 2022 for the real estate sector, GREI could prove useful to investors because it offers flexibility and a modern approach to this asset class. Said another way, it focuses more on areas of real estate that are thriving and less on those with already-documented vulnerabilities to COVID-19.
“Meanwhile, REITS that own properties like office buildings, malls, senior housing, and hotels that depend on business travel have been tracking the ups and downs of the pandemic since early 2020,” according to the Journal.
For its part, GREI is more heavily allocated to technology REITs, including companies with exposure to the booming 5G and data center themes. Likewise, as an actively managed ETF, GREI can boost exposure to industrial REITs — a group that’s been one of the best-performing sub-industries in the REIT space.
If those factors aren’t enough to convince investors of GREI’s 2022 utility, perhaps inflation will be. Inflation is likely to remain hot through the first half of next year, and that could lure investors to REITs, which sport pricing power.
“The rise in inflation, so far, has been good for REITs because it has helped drive up mergers and acquisitions volume, as well as sales volume and values of individual properties. Many investors consider real estate an inflation hedge because owners can raise rents to stay ahead or at least keep pace with rising prices,” notes the Journal.
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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.