The recovery in commercial real estate accelerated this spring, according to the news from second quarter REIT earnings reports. Earnings of all equity REITs, as measured by funds from operations (FFO), rose 19.8% in 2021:Q2 compared to the prior quarter. Significantly, FFO of the REIT sector as a whole rose slightly above the peak level prior to the pandemic, and has fully recovered from the declines in earnings experienced during the shutdowns and social distancing of last year (aggregate REIT earnings figures are reported in the Nareit T-Tracker, a comprehensive measure of REIT earnings and operating performance. Full disclosure: I am senior economist at Nareit and help produce the quarterly T-Tracker).
This earnings recovery, while brisk, has been uneven across property sectors, mainly due to their different experiences during the first year of the pandemic. Some sectors in commercial property markets felt the full impact of the shutdowns and social distancing measures last year. These COVID-sensitive sectors include lodging and resorts, retail (including regional malls), and health care (which includes senior housing and skilled nursing facilities). FFO of these sectors declined 40.8% from 2019:Q4 through 2020:Q4 (dark blue bars in first chart).