Savvy investors expecting the Trump administration will fulfill its vow to bolster economic growth are now betting on the subsequent increased demand for offices and hotels.
The Financial Times reports that Hotel and Resort real estate investment trusts have risen about 15 percent since the election and Office Reits have jumped nearly 11 percent.
The broader S&P 500 Real Estate index has gained only 3.3 percent since November 8, while the overall market has rallied more than 10 percent.
The index is dominated by REITs, real estate investment trusts that own or finance real estate allowing investors to get exposure to the sector through owning the company’s stock.
Despite higher interest rates translating into more expensive mortgages, which can hurt the real estate industry, stronger economic growth should also bolter office-space demand.
“Analysts at Morgan Stanley point to the banking sector as an example; as financial services benefit from both political tailwinds and rising interest rates, office REITs with exposure to banks should benefit as well,” the FT reported.
Edward Mui, an analyst at Morningstar, told the FT: “It is important to step back and look at the context of why interest rates are rising. For the most part it is based off the expectation of increased or accelerating economic growth.”
But recently, office-space demand in the Big Apple has essentially soured.
Manhattan office landlords are facing falling rents and heightened competition, spurring unprecedented spending to accommodate tenants, Bloomberg reported.
Effective rents, the amount paid after concessions, slid 7 percent in the fourth quarter from the previous three months to an average of $57.18 a square foot, according to brokerage Savills Studley.
Leasing has slumped and tenants are putting more excess space on the market for subletting -- often a sign of weakness to come, Bloomberg reported.
With brand-new skyscrapers opening and companies seeking to pack more workers into less space, New York landlords are having to work harder to lure and keep tenants. Building owners are spending aggressively to make traditional partitioned offices more collaborative while adding amenities such as food areas and open-air terraces.
(Newsmax wires services contributed to this report).
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