A Historical Assessment of How REITs Have Thrived During Previous Economic Recessions, Emphasizing the Sectors Most Affected
Disciplines
Construction Engineering | Real Estate
Abstract (300 words maximum)
Real Estate Investment Trusts (REITs) have become an important component of diversified investment portfolios due to their potential for consistent income and capital appreciation. Although real estate investment trusts (REITs) are highly perceived as reliable sources of income, their performance is highly attuned to shift changes in macroeconomic factors like interest rates and monetary policy. However, macroeconomic conditions like inflation, changes in central bank/ government fiscal policies lead to change in interest rates, have a significant impact on their success. Because of differences in their underlying business structures, interest rate swings can have varying effects on equity and mortgage REITs. This Research fosters a better understanding of how monetary policy influences real estate investment, with implications for both institutional and retail sectors. This study conducts an empirical analysis to study the impact of macroeconomic condition factors on the REITs. To achieve this objective, this study analyzes the variation of REIT index, evaluates the long-term performance of REIT (1971 Dec to 2024 March and identifies the trends in REIT stock prices and total returns in retaliation to Fed (federal reserve) interest rate fluctuations. In addition, Mortgage REITs tend to be more unpredictable than equity REITs during times when there are rising interest rates since their profitability is based on interest rate spreads, which have a direct impact on their earnings. Equity REITs, on the other hand, are less subject to interest rate fluctuations because their revenue is based on property prices and rental income. This study conducted non- parametric tests for REIT to measure the changes of the index during economic crises. Economic crashes during recessions cause consumer spending. Economic downturns during recessions cause a drop in consumer spending. This study discovered that during recession and economic slowdown periods, the REIT index fell dramatically, and market volatility rose, both of which had a major negative impact on REIT performance and concluded that there is a significant impact of recession on the REIT based on data collected from institutional and Retail investment sectors. The study also found that REIT-specific variables, such as interest rates, had a considerable impact on market forecasts. The findings of this study contribute the current state of knowledge to strengthen policy responses, preparedness and economic resilience in terms of external shocks like recissions and natural disasters.
Academic department under which the project should be listed
CACM - Construction Management
Primary Investigator (PI) Name
Minsoo Baek
A Historical Assessment of How REITs Have Thrived During Previous Economic Recessions, Emphasizing the Sectors Most Affected
Real Estate Investment Trusts (REITs) have become an important component of diversified investment portfolios due to their potential for consistent income and capital appreciation. Although real estate investment trusts (REITs) are highly perceived as reliable sources of income, their performance is highly attuned to shift changes in macroeconomic factors like interest rates and monetary policy. However, macroeconomic conditions like inflation, changes in central bank/ government fiscal policies lead to change in interest rates, have a significant impact on their success. Because of differences in their underlying business structures, interest rate swings can have varying effects on equity and mortgage REITs. This Research fosters a better understanding of how monetary policy influences real estate investment, with implications for both institutional and retail sectors. This study conducts an empirical analysis to study the impact of macroeconomic condition factors on the REITs. To achieve this objective, this study analyzes the variation of REIT index, evaluates the long-term performance of REIT (1971 Dec to 2024 March and identifies the trends in REIT stock prices and total returns in retaliation to Fed (federal reserve) interest rate fluctuations. In addition, Mortgage REITs tend to be more unpredictable than equity REITs during times when there are rising interest rates since their profitability is based on interest rate spreads, which have a direct impact on their earnings. Equity REITs, on the other hand, are less subject to interest rate fluctuations because their revenue is based on property prices and rental income. This study conducted non- parametric tests for REIT to measure the changes of the index during economic crises. Economic crashes during recessions cause consumer spending. Economic downturns during recessions cause a drop in consumer spending. This study discovered that during recession and economic slowdown periods, the REIT index fell dramatically, and market volatility rose, both of which had a major negative impact on REIT performance and concluded that there is a significant impact of recession on the REIT based on data collected from institutional and Retail investment sectors. The study also found that REIT-specific variables, such as interest rates, had a considerable impact on market forecasts. The findings of this study contribute the current state of knowledge to strengthen policy responses, preparedness and economic resilience in terms of external shocks like recissions and natural disasters.
