Despite a stubbornly weak labor market and insignificant increases in consumer sentiment and spending, commercial real estate and the exchange traded funds (ETFs) which track the sector have fared relatively well this year and are expected to continue to do so.
Commercial real estate values appear to be stabilizing as rents are no longer falling, vacancies for apartment buildings, office buildings and retail malls are no longer rising. A major driver behind this stabilization is improved credit markets, which have enabled many real estate investment trusts (REITs) to refinance debt and issue equity which can be used to pay down debt early or buy more properties at cheap valuations.
As for the near future, commercial real estate prices are likely to continue to appreciate as the Federal Reserve expands its record stimulus with the implementation of further quantitative easing, known as QE2, which calls for the purchase of $600 billion of long-term Treasuries and keeping interest rates at a near historical low. Depreciation in the value of the US Dollar against foreign currencies is likely to result from QE2 which makes properties more affordable and attractive to foreign investors.
With this in mind, some ETFs to play the commercial real estate sector and gain exposure to real estate investment trusts that are increasing liquidity and shoring up their balance sheets like Simon Property Group (SPG), Vornado Realty Trust (VNO), Boston Properties (BXP) and Equity Residential (EQR) include:
- iShares Dow Jones US Real Estate (IYR)
- SPDR Dow Jones REIT (RWR)
- Vanguard REIT Index ETF (VNQ)
- iShares Cohen & Steers Realty Majors (ICF)
Disclosure: No Positions