The improving economy and residential market has also helped the self-storage firms. Rather than new single-family homes spelling the end of apartment renters storing their extra furniture, "It's more about churn," Yablon says. "When there's no churn, people who graduate are living with their parents, and people in homes are staying in their homes...[Now] people are moving around the country taking new jobs."
The industrial sector has the strongest prospects for growth next year, Yablon says. The group has been prospering as large distribution centers have been in demand, thanks to the growth from online retailers like Amazon.com. The larger spaces in the healthier markets like West Los Angeles and parts of Texas have filled up. Companies like Prologis, the largest in the sector, were the big winners last year and are still well positioned. Yablon thinks the next wave will happen this year as spaces catering to smaller retailers start to get filled.
A related trend that helps industrials is the recovery in housing. Regional builders and contractors will need to store their supplies as demand picks up for renovations and new home construction. The large REITs, which own a lot of land, should see more development opportunities in the United States in the next year. Yablon reckons that will translate into a decent return on those land investments. A favorite is DCT Industrial.
Loosening Up at Home
Investors believe corporate decision-makers will finally be able to move forward with spending decisions as fears of the fiscal cliff fade. That should help REITs that own office space. Yablon's picks among REITs serving businesses include DuPont Fabrose Technology, which provides data storage.
Several investors also expect hotels to improve as corporate travel picks up again. Rates that companies negotiate for their travelers will climb 5% this year, Romano estimates, while group bookings for conferences at hotels are picking up. Hotel REITs that Yablon expects to benefit include Pebblebrook, which specializes in higher end business hotels, as well as Hersha Hospitality.
In retail, several investors favor the highest quality regional malls, like those owned by Simon Properties. Sales per square foot at top properties, like the Short Hills Mall in New Jersey, have hit record levels of $500 per square foot, passing their 2007 peaks. That means landlords have pricing power to increase rents. One of Darst's favorite REITs is regional mall owner Macerich, with 96 properties in 19 states.
Apartments have been the laggards in the United States recently, as they have seen earnings decelerate as the market for single-family homes has recovered. However, all is not gloom and doom for apartment REITs. Yablon thinks the group was oversold, and likes Apartment Investment and Management Co. because it's cheap.
Ferguson likes the entire group. He notes that home ownership rates, which peaked in 2007 at 69%, are now down to 64%, and many observers think they could sink as low as 63%. With 150 million households in the United States, another 1% decline translates to 1.5 million households of new renters. Even with subpar job growth, apartments have seen strong rental and occupancy growth because of the migration from excessive home ownership back to a long-term norm.
But even with improvements in job growth, household formation gets a boost, and typically a third of those are renters. That translates into good pricing power for apartment owners. A favorite of both Ferguson and Darst is AvalonBay Communities.