Home Featured E-commerce is a Sector Gamechanger for U.S. REITs

E-commerce is a Sector Gamechanger for U.S. REITs


Part 1 of 3

A notable development in recent months could significantly change the U.S. equity REIT sector and how the market goes about investing in it. That is according to Fitch Ratings in the first edition of its Equity REIT Handbook.

“Struggles continue for the challenged retail sector as the incursion of E-commerce has led to some retailers gradually shrinking their imprint throughout the country,” the handbook says. “Lack of rent growth will prove to be especially problematic for class B malls and outlying strip centers as they lose tenants.”

With that said, Fitch’s view of retail REITs remains largely neutral.

“Approximately 70% of retail sales will still be made in a physical store in 2020, compared with around 80% today,” says Managing Director Steven Marks. “Consumers by and large still enjoy shopping as a leisure activity, plus a significant portion of online sales are connected with a store visit.”

In contrast, healthier fundamentals and stronger performance await subsectors like office and industrial REITs, Fitch says.

Slightly shrinking demand for space should not curtail rent growth while strong employment growth will buoy tech employment-oriented markets. “Signs of thawing in tech IPOs and strong venture capital fundraising suggest healthy fundamentals over at least the next several months,” says Marks.

Meanwhile, accelerating growth in the broader economy (Fitch’s global forecast calls for 2.9% world GDP growth) and growth in E-commerce-related distribution centers will be a plus for industrial REITs. Supply chain reconfigurations would be longer-term concerns if economic growth slows that could lead to weaker industrial property fundamentals.

Check back with The REIT Wire in the next day or so as we cover more about sector-level financial and credit metrics.