The market for real estate investment trusts (REITs) continues to look strong, but analysts at UBS Warburg warn that things may not stay that way. A recent report, "REITSearch Fundamentals: Spreads Shades of 1997," refers to the "good old days" of 1997 that, like today, saw narrow REIT margins.
However, by 1998, spreads had widened by 250 basis points. Analysts speculate that something similar may happen today, although there are no signs that the REIT market is deteriorating.
"Despite where they have been in the past, we can not identify any visible catalysts that would push them back out anywhere near their historically wide levels," the report reads. Furthermore, with only $3 billion to $4 billion of new REIT paper being generated over the remainder of the year, the demand will easily soak up this supply.
Also, the acceptance among buyers of REITs is much higher than it was five years ago, the report mentions, contributing to lower volatility for the REIT market going forward.