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2020 Year in Review: Investing in Real Estate Stocks and REITs


[Updated: Jan 04, 2021] Nov 30, 2020 by Matt Frankel, CFP
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The real estate sector started 2020 on a rather high note, but that all changed as the COVID-19 pandemic swept across the United States. Since the usage of most types of commercial real estate depends on the ability and willingness of people to leave their homes and physically go places, real estate was one of the worst-performing sectors in the stock market. Even after the recent rebound fueled by positive vaccine data, real estate is significantly underperforming, with the Vanguard Real Estate ETF (NYSE: VNQ) down by 6%, compared with a 13% gain in the S&P 500.

However, that doesn't tell the whole story. Some types of real estate stocks have held up quite well or outperformed the market, while others have been beaten down tremendously.

Some real estate stocks have done quite well

While the real estate sector as a whole has underperformed the S&P 500, it's not fair to generalize. Some real estate subsectors have actually performed quite well -- specifically, those that either haven't been affected by or can thrive in a stay-at-home economy.

Data centers are a good example, as millions of people working from home created a growing need for cloud-based data solutions. Industrial REITs, or real estate investment trusts, have benefitted as well, as many of their properties serve as the physical distribution hubs for e-commerce. And finally, tech-focused real estate service providers have been some of the best performers in the entire stock market, fueled by a strong housing market and the increasing need for tech-focused (as opposed to in-person) ways to shop for and sell homes.

Here's a rundown of some of the largest stocks in each of these categories, all of which have significantly outperformed the real estate sector this year.

Company (Symbol) Type of Real Estate Investments YTD Performance
Digital Realty Trust (NYSE: DLR) Data centers 17%
American Tower (NYSE: AMT) Communications infrastructure 3%
Prologis (NYSE: PLD) Industrial 15%
Zillow (NYSE: Z)(NYSE: ZG) Real estate technology 135%
Redfin (NASDAQ: RDFN) Real estate brokerage 131%

Data source: Ycharts. Returns through 11/30/2020.

Some REIT subsectors have been hammered

On the other hand, some subsectors of real estate stocks were absolutely decimated as the pandemic broke out. As you might expect, these would include the more consumer-facing real estate subsectors, like retail and hospitality REITs. At the market's bottom in March, some leading REITs in these sectors had lost 80% or more of their stock prices -- even those with rock-solid balance sheets. Office REITs were also among the worst performers, as there were (and still are) widespread concerns that millions of Americans will work from home, even after the pandemic.

While the recent positive vaccine data has fueled a significant rally, some of the leading stocks in the most affected real estate subsectors are still dramatically underperforming the market this year, as you can see in this chart.

Company (Symbol) Type of Real Estate YTD Performance
Simon Property Group (NYSE: SPG) Shopping malls (39%)
Tanger Factory Outlet Centers (NYSE: SKT) Outlet retail (28%)
Ryman Hospitality Properties (NYSE: RHP) Hotels (23%)
EPR Properties (NYSE: EPR) Movie theaters and other experiential (44%)
SL Green Realty (NYSE: SLG) Office (30%)

Data source: Ycharts. Returns through 11/30/2020. Parentheses indicate negative numbers.

The bottom line: A mixed bag

While the real estate sector in general didn't have a great year, there's a wide range of performance among different types of REITs and real estate stocks. Some were absolutely crushed by the COVID-19 pandemic, while others performed quite well. As we head into 2021, the performance of real estate stocks will likely be determined by the ongoing developments in the fight against COVID-19 and how quickly the economy starts to normalize.

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Matthew Frankel, CFP owns shares of Digital Realty Trust, EPR Properties, Ryman Hospitality Properties, Simon Property Group, and Tanger Factory Outlet Centers. The Motley Fool owns shares of and recommends American Tower, Digital Realty Trust, Redfin, Ryman Hospitality Properties, Vanguard REIT ETF, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends EPR Properties and Tanger Factory Outlet Centers and recommends the following options: short February 2021 $40 puts on Redfin. The Motley Fool has a disclosure policy.