Rising rents and declining vacancy rates have and will continue to benefit the industry
Los Angeles, CA (PRWEB) April 04, 2012
The demand for and growth of the Real Estate Investment Trusts (REITs) industry are most often associated with the general health of the real estate sector. Prior to the subprime mortgage crisis, the industry benefited from the real estate bubble as lax lending standards and rapid property appreciation drove up revenue. As a result, in the two years to 2008, revenue increased at an average annual rate of 9.5%. This trend began to reverse in 2008, however, after the bubble burst and the credit markets tightened. Consequently, industry revenue fell in 2009 before a recovery in 2010. IBISWorld estimates that total industry revenue will increase at an average rate of 1.8% per year to $57.7 billion in the five years to 2012, including a 4.6% increase in 2012. Since 2007, the industry has struggled with the worst financial crisis and property downturn since the Great Depression. Industry assets lost about 29.9% of their value, or $115.0 billion, in the two years to 2008. Similarly, market capitalization for publicly held REITs decreased 58.4%, or $285.2 billion, which is important because the market capitalization of a publicly traded REIT is often used as a determinant of that firm's ability to raise new capital for operations. According to IBISWorld industry analyst Kathleen Ripley, unlike asset values and market caps, however, industry revenue saw only one year of moderate decline, in 2009, as leases and other long-term contracts have been able to maintain REIT revenue streams.
The industry is currently benefitting from a rise in rents and declining vacancy rates in a number of property markets. At the same time, well-capitalized REITs are also helping to boost downstream construction and real estate industries as they ramp up purchases and new construction to take advantage of low interest rates and mounting rental demand. In the five years to 2017, industry revenue is expected to increase, driven by economic recovery and a rebound in the real estate market. At the same time, the industry is forecast to expand as larger more capitalized firms purchase real estate portfolios at bargain basement prices, particularly in the first half of the next five years.
The concentration of ownership is low, with the top four businesses in the Real Estate Investment Trusts industry accounting for an estimated 25.3% of the total market in 2012. The industry can be categorized into three types of REITs: publicly traded, privately traded and non-exchange traded funds. The number of listed REITs on US stock exchanges (primarily the NYSE) has been steadily declining as industry participants continue to be acquired by private equity investors and large financial institutions. In addition to outside investors, larger more capitalized firms have been increasingly purchasing smaller REITs, as many of these companies were decimated by the subprime mortgage crisis and the real estate bubble burst. “The subprime mortgage crisis lowered REIT equity, as property prices dropped, diminishing the ability for these firms to use property holdings as collateral for new loans or refinancing,” said Ripley. Additionally, many firms that were already over leveraged were significantly affected by the credit market freeze, as these companies became unable to finance new growth or refinance outstanding debt. As a result of this trend, companies have looked to unload properties or merge with strong well-capitalized firms to maintain operations. This trend is expected to continue in the future and industry concentration is expected to rise as a result. For more information, visit IBISWorld’s Real Estate Investment Trusts in the US report in the US industry page.
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IBISWorld industry Report Key Topics
The industry is comprised of legal entities that are categorized as real estate investment trusts (REITs). To qualify as an REIT, a company or trust must distribute at least 90.0% of taxable income to shareholders annually in the form of dividends. REITs use the pooled capital of many investors to directly invest in income-producing property. Income is mainly generated from rent, interest and capital gains. There are three types of REIT funds: equity, mortgage and hybrid.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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Recognized as the nation’s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit http://www.ibisworld.com or call 1-800-330-3772.