Headwinds Facing Office REITs

A recent article by Green Street Advisors has a good point about offices in general while providing a picture of the valuation of the office segment:

Source: Headwinds in Office Real Estate: A Sector in Transition

And a Bloomberg chart about the performance of the Bloomberg Office Property Index in the last 12 months as of the close of 10/25:

Source: Bloomberg

The index is at a critical point, attacking the green resistance line. As the office sector is a quite big component of REIT ETFs and Indexes, a break above this trendline could be a game changer.

 

European Property Returns

A new research piece came out from Colliers giving an overview of the European property markets:

Source: CAPITAL FLOWS EMEA QUARTER 3 | 2018

Berlin, Frankfurt and Madrid are red hot markets across the three sectors, and London looks pretty decent in Logistics and Retail despite Brexit.

Source: CAPITAL FLOWS EMEA QUARTER 3 | 2018

Prime yields in the core countries have been basically flat in the last two years, while their spread to government bonds have shrunk.

Could this be the end of the fall in prime yields?

Hedge Fund Bet Turns Sour As Retail Recovers

Bloomberg reports that shorting the CDS index composed mostly of retail mortgages has posted a +8% gain this year, causing pain for hedge funds who took the short side of the trade. These indexes have been rising together with the SPDR S&P Retail ETF (XRT), which is at an important support level:

Source: Bloomberg

These hedge funds would love to see XRT broke this trendline, taking the two CDS indexes with it.

Disclosure: We don’t have any positions in XRT.