This article is republished with permission from REITCafe.

Real estate investment trusts (REITs) were volatile in March, jumping around throughout the month. By the end of the month, the FTSE NAREIT All REIT Index had slightly underperformed the broader markets, with a gain of 1.15 percent. Stocks fell in advance of the Federal Reserve’s March meeting, as investors speculated that strong job growth and an expanding economy might prompt the bank to raise interest rates sooner rather than later. Prices surged following the meeting, as it became clear that June is the earliest that interest rates may rise.

Meanwhile, more companies are being urged to spin off their real estate assets into REITs. Both McDonald’s and MGM Resorts International made headlines when activist investors encouraged real estate spin-offs. Sears filed an S-11 Registration Statement on April 1 for a REIT that will hold 254 properties and will be called Seritage Growth Properties.

TREPP-i Survey Loan Spreads (50-59% LTV)*

This Week Previous Week Prev. Month End 2014 End 2013 Industrial 149 148 144.4 138.5 170 Retail 152 150 145.4 139.8 175 Office 153 155 150 148 175 Multifamilty 144 145 140.4 139.8 166.7 Average Spread 149.5 149.5 145.05 141.5 171.7 10-year Treasury Yield** 1.84 1.95 2.11 2.17 3.04

Apartments stood out as the best-performing REIT sector during March, with a 3.83 percent monthly gain. As overbuilding has become less of a concern and demand has stayed strong, investors remain bullish on the sector. Increased job growth paired with the popularity of renting is driving more Americans into apartments. In addition, higher interest rates will make homeownership less affordable. Rising stock prices for three of the largest REITs—AvalonBay Communities (AVB), Essex Property Trust (ESS), and UDR (UDR)—drove the sector forward.

Regional malls were the second-best-performing sector, with a 2.34 percent gain in March. Lower fuel prices have benefited retail REITs because people have more disposable income. Simon Property Group’s (SPG’s) bid for Macerich (MAC) led to a sharp gain in stock price for Macerich, but the stock lost most of that after Macerich’s board rejected the offer. Simon’s stock dropped when it made the offer for Macerich, but more than recovered after the bid was turned down.

Office proved to be surprisingly strong, with a 2.25 percent gain in March. This is the first time in many months that office has ranked among the strongest REIT sectors. With limited supply and increasing demand for office space, the sector has experienced steadily improving market fundamentals. The large coastal office markets that many REITs invest in are commanding significant rent growth, which further benefits office REITs.

Sectors that struggled with negative total returns in March include infrastructure (–4.30 percent), timber (–3.33 percent), and lodging (–1.04 percent). Volatility resulted in modestly positive REIT performance for the month. However, solid underlying real estate market fundamentals should help mitigate interest rate concerns and contribute to ongoing positive REIT performance in 2015.

* TREPP-i Survey Loan Spreads levels are based on a survey of balance sheet lenders. For more information, visit Trepp.com. ** – 10 yr. Treasury Yield as of 4/3/2015