The economic effects of the coronavirus outbreak continue to roil real estate markets, but properties owned by real estate investment trusts are still getting most of their rent. The glaring exception is retail.
The level of rent collection by U.S. REITs was about the same in May as it was in April, according to a survey just released by Nareit, an industry trade group. The survey covered six commercial real estate property sectors and compared the rents collected in May with those of a typical month before the pandemic.
"The survey results suggest that, while REIT tenants in some hard-hit sectors continue to struggle, their ability to pay May rent didn't appreciably worsen, despite the widespread business closings in April," said John Worth, executive vice president of research at Nareit .
Industrial REITs, which include warehouses, were already seeing growing demand as retail moved online, and that demand has increased due to the pandemic. Food shopping has seen a significant shift online, and with most retail stores closed, demand from companies like Amazon is even higher. Industrial REIT rent collection in May was nearly 96% of a typical month and down just 3 percentage points from April.
Apartment REIT rent collections were also strong in May, remaining at 95% of a typical month and basically flat with April collections. Apartment landlords responding said they granted rent deferrals for 3% of rent owed. Single-family rentals and lower-income apartments not owned by REITs have not fared as well.
"The continued ability of apartment renters to meet their rent obligations reflects both the federal government stimulus, including enhanced unemployment benefits, and the fact that REIT apartments generally house individuals who are less likely to have been affected by layoffs to date during this crisis," Worth said.
The office sector, which has been largely shuttered for the last two months, also paid the rent – or at least 92% of a typical month and down just 1 percentage point from April collections.
Retail is another story. The sector is divided into free-standing retail, which are mostly convenience stores, restaurants and pharmacies, shopping centers, which are usually anchored by a supermarket, and regional malls.
Free-standing retail was about the same in May as April, with 70% of typical rents paid, although rent deferrals were granted for nearly 18% of payments. A majority of businesses in free-standing retail, like grocery and drug stores have helped stabilize the sector, as they are deemed essential businesses and can remain open.
Shopping center REITs saw a slight improvement over April but still reported just 48% of typical rents collected in May. Mall REITs did not respond to the survey enough for conclusive reporting, but malls have been shuttered entirely, and major retail anchors like Neiman Marcus and J.C. Penney have filed for bankruptcy.
REITs that responded to the Nareit survey represented 63% of the equity market capitalization of the FTSE Nareit All REITs Index. REITs in the index collectively own and operate between 10% and 20% of investment-grade commercial real estate in the U.S.
Correction: This story was revised to correct that J.C. Penney has already filed for bankruptcy protection and to delete an incorrect reference to Nordstrom. It is not exploring bankruptcy.