Wells Fargo expects real estate investment trusts to again outperform stocks in 2022, achieving high single-digit returns, compared to flat for stocks.
Among the REITs Wells Fargo favors are
“We believe the continued (even if gradual) resumption of both leisure and business travel, as well as an eventual (even if partial) return to office will help drive performance of hotel and office REITs in particular,” the analysts said.
To be sure, “we continue to believe office requirements will be in flux, as tenants weigh the benefits and detriments of working from home or hybrid work.”
Strong consumer spending will boost retail REITs, the Wells Fargo analysts said. “The consumer balance sheet remains healthy overall,” they said.
“This should result in continued retailer leasing activity, occupancy pick-up and strengthening re-leasing spreads, supporting organic growth for retail REIT stocks.”
As for industrial REITs, “we expect industrial demand to remain high, driven by the continuing shift to e-commerce and re-stocking of inventories,” the analysts said.
“While we believe supply will increase in 2022, the backlog of demand should continue to move rents higher.”
Wells Fargo’s REIT call is based on the MSCI US REIT Index and the S&P 500. The REIT index has gained 37% year to date, compared to 26% for the S&P 500.