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Specialty REITs Eating More of the Pie

March 14, 2017

Specialty REITs Eating More of the Pie

A new wave of specialty REITs is outpacing the slowing growth of the larger sectors.

March 3, 2017 | by David Dent | Commercial Property Executive

The REIT market has traditionally focused growth on the major commercial property types, which have performed especially well during the long recovery from the Great Recession. However, a new wave of specialty REITs is outpacing the slowing growth of the larger sectors.

While net operating income (NOI) grew by an average of 3 percent for major property categories and 7 percent for all equity REITs in 2016, it surged by an average of 16 percent in specialty sectors, including data centers (+27 percent), self-storage (+17 percent) infrastructure (+15 percent) and health care (+12 percent), according to the most recent National Association of Real Estate Investment Trusts’ (NAREIT) Total REIT Industry Tracker Series (T-Tracker®). The four specialty categories represent only 30 percent of total equity REIT NOI but garnered over 60 percent of total NOI growth last year.

 The higher growth of specialty REITs come from a combination of factors. Major property types that have healthy fundamentals in recent years–including apartments and hotels–are starting to see a moderation in the rate of rent growth. Property types that have longer operating histories and more established sectors have less room for growth.

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