Niche office spaces offering opportunities in real estate: Analyst
Historically, REITs — or real estate investment trusts — tend to outperform individual stocks when interest rates rise, but recently REITS have hit a low not seen since 2020. Many investors are now wondering if it's a good idea to buy the dip in the real estate sector.
Wedbush Managing Director Richard Anderson joins Yahoo Finance to discuss what is going on with REITS during the Fed's higher for longer interest rates and where he thinks investors could find the best opportunities.
Anderson explains his position on commercial real estate: "Conventional office is going to have its difficulties as tenants try to figure out what they're going to do when their leases expire. Niche offices, like life science, where there's an absolute need for the space for biopharma tenants, or medical office where there's an absolute need for hospitals and doctors that see patients, that's where we like the office space."
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Video Transcript
RACHELLE AKUFFO: And, Richard, I know you disagree, but I mean, history does show that REITs actually do perform well in a rate-rising environment. So I want to hone in on some of the ones that you're actually favoring at the moment within commercial real estate. You're looking at multifamily, industrial, senior housing, and niche office. So talk about the distinction, especially in office, because it does all tend to get lumped together.
RICHARD ANDERSON: It sure does. And I think that is also an opportunity. If you spend any time listening to how commercial real estate is discussed in any outlet, sometimes, the word "office" and commercial real estate are used interchangeably. And that's an important distinction.
There are some really good asset classes in the REIT space. You mentioned many of them. Multifamily is apartments for rent. What's happening there is mortgage rates, as we all know, are up at all time highs. And that makes it very difficult for someone renting an apartment to go and buy a home. And likewise, you have student loans now having to be paid back, less wealth for renters to leave and go and do something else. And so that's a good source of stability for multifamily, again, going into next year.
Industrial has been the beneficiary of e-commerce. I think that will continue. A lot of demand for warehouse space and fulfillment centers, that will continue to grow. So we like that space. Senior housing is sort of a cousin to multifamily, taking care of the old people of the country. And that's a recovering story.
Postpandemic, we've seen-- well, during the pandemic, we saw occupancies drop 100-- 1,000, 1,500 basis points. And now that's in recovery mode. And then niche office, getting back to that, what I'm saying there is conventional office is going to have its difficulties, as tenants try to figure out what they're going to do when their leases expire.
But niche office is like life science, where there's an absolute need for the space for biopharma tenants, or medical office, where there's an absolute need for hospitals and doctors that see patients. That's where we like the office space, in that niche category of the office arena.
AKIKO FUJITA: OK, well, we'll be watching to see how those perform. Richard Anderson, Wedbush Managing Director, Equity Research. It's good to talk to you today. I appreciate the time.
RICHARD ANDERSON: Thank you for having me.
