While Investors Wondered About the Recovery, Real Estate Stocks Had Long Rallied
Published by Jordan Girard on May 17th, 2021
If you are involved in real estate, you may have felt like you were a part of two separate stories. While headlines were highlighting cash-strapped businesses, unoccupied city blocks, and record-high residential vacancies, real estate stocks were rallying or beating their pre-COVID levels. Indeed, while most investors were questioning the recovery's speed, real estate stocks had already rallied.
Recovery: Stock Market Preceded On-the-Ground Investors
By and large, most broad indicators of a real estate recovery were not positive until the end of January 2021, which marks the national vaccine rollout. Home sales were a bright spot in many metro areas, but that price increase was primarily due to tight supply. While home prices went up, the inventory was artificially low.
However, in non-residential real estate, the market was grim. A record 12,200 stores shuttered their doors permanently across the country. Everyone expected significantly reduced demand for office space. Harvard Business School professor Ashley Whillans even rebranded the 9-to-5 calling it the 3-2-2 (3 days in the office, 2 days at home, and 2 days off). Overall, the pandemic was nine times worse than 9/11 for the hotel industry. As Barron’s put it: "Few stocks were hit as hard as real estate investment trusts."
But in Q4 2020, when most industries still wondered about their ability to absorb the financial burden brought by the pandemic, real estate investment trusts (REITs) started flourishing.
Simon Property Group (Ticker: SPG), the U.S. leader in retail, was trading around $140/share in February 2020. Immediately following the announcement of a U.S. shutdown, the stock price fell to $48, a market cap loss of a whopping $25 billion. By January 2021, while the U.S. had lost over 12,000 retail locations, the stock price reached $93/share, up 93%. As of May 2021, shares of SPG have crossed above the average analyst 12-month target price of $114.50, changing hands for $124/share.
SL Green Realty (Ticker: SLG), NYC's largest commercial landlord, also mounted a first-quarter comeback despite all expectations. The stock was trading around $96 in February 2020 before falling to $39 in April 2020. The stock reached $77 in mid-March 2021 while the average office occupancy in the 10 largest U.S. cities for the week ended March 24 was as low as 24.2%.
Finally, Ryman Hospitality Properties (Ticker: RHP) was trading at around $91/share in February 2020. It fell to $21 in April 2020 upon the realization that leisure and business travel was going to come to a halt for an indefinite amount of time. As of March 2021, the stock was trading above $80/share, which compares to its 2019 level.
Now more than ever, REITs are making up for the lost time. They became highly indicative of the broader market’s optimism and bet for an outstanding 2021-2022 recovery, which is now clearer than ever before (we covered the New York recovery in our last blog post available here).