Take a few steps back and the REITs are only back to their mid-March/April price levels. The last 10% of the up move to mid May was probably the steepest. I remember shorting some names like IOF and CHC and there were basically no ASK to cover, especially in the morning.
To me the question for the prospective investor is whether REIT represents better reward/risk to say banks (similar yields but fully franked), Telstra, utilities (similiar yield but regulated) and other industrials with lower yield but perhaps chance of growth.
That's a trillion $ question I guess!
My pesonal perspective is that the present economy is not supportive of the likelihood of further growth in the A-REIT sector in the near future (perhaps longer).
A lack of businees confidence and growth in the non mining sector means that demand for office space will plateau. New developments will compete with existing office space for tennants. A recent report on GPT (thanks coolcup) indicated the competition to lease office space and retain tennants (particularly in Melbourne) is getting more and more intense. The cost of discounting and inducements must eat into earnings. Relying on acquisition and disposal of properties may provide short term additional income but the opportunities for growth in the sector is limited. Sydney is going to feel the pinch also particularly when Barangaroo is finished. A real probability is the revaluation downward of hard to lease office properties impacting on share values.
Retail has been strained for a while and the likes of David Jones provides a good barometer to how tough the retail sector is atm. Retail A-REIt's appear to be relying more and more on Food Court tennants and some specialty stores for foot traffic. The sharp rises in A-REIT's share prices in this area have been disproportionate to the yields on offer and the returns they are getting. People are saving more and spending less, credit card debt is being paid down. Empty sites abound.
While the Aud$ dollar was steady against the US$ the yields were probably very attractive to offshore investors clamouring for returns beter than bond yields and bank interest rates. However, as you point out, the surge since April cut the yields on offer and all it took to bring this undone was an interest rate cut by the RBA and Soros to announce he was selling the Aud$. Goldman Sachs and a few others followed suite. Alan Hohler provided a good chart showing the comparative fall in the All Ords compared to the US s&p500 when considered in US$ values. The recent drop in the value of A-REIT's, if shown on the same basis would be frightening.
Only a short while ago the Fundmangers and analysts were sprooking the Aud$ going to US$1.10. Now on the basis of unfathomable belief that "the US economy is showing signs of improvment", the professional are sprooking the Australian economy as overvalued and selling down our dollar. The sell down of the dollar completely erodes the A-REIT share price spike since Aprill and may cut values back further like a pendulum swing with a little further to go.
The best thing going for A-REIT's since the GFC is that they have all reduced their debt levels, mostly less than 35% and are better positioned to survive any contraction. The second best thing is that most of them are paying out arround 80% of earnings and they are not relying on borrowed funds to pay distributions.
I suspect we will see increased volitility until after the Federal Election. No doubt the volitilty will provide trading opportunities for the brave. Determining entry/exit points might be tough. With the recent low buy/ask volumes and the smaller parcel sizes showing (particularly early in the day) I am finding it harder to trade with confidence. Personally I wouldn't be jumping in at the present levels for a long term hold.
Oh, and the trillion $ question (US defecit?), chasing yields as a better form of investment in troubled times is like choosing which share is likely to fall less and trying to hedge the amount you may lose against the yields you hope will be maintained. My perspective is to protect the capital base atm. We have reduced our holdings to two (2) parcels and are predominatly cashed up.
As always, this is just my opinion, everyone should do their own research and good luck