Do the REIT Thing?

Although the once torrid growth in the value of land and officespace has slowed down lately, there's no question that realestate investment trusts (REITs) have been at the head of the assetallocation class since the spring of 2000. REITs gained an averageof 3.6 percent last year, a number that won't setinvestors' hearts aflutter-until you consider that the S&P500 Index lost 22 percent over the same period. The gap betweenREITs and stocks, which was even wider in 2000 and 2001, narrowedbut did not disappear in the first quarter of this year.

If you're thinking of REITs as one of the last safe havensfrom the bear market, however, think again. Even with the war inIraq in the rearview mirror, businesses are cautious aboutexpanding into new and bigger office space. So vacancy rates areedging higher, and rents are slipping lower, which is not therosiest of scenarios for investors in commercial real estate. Thesluggish economy has put a lid on rental increases for apartmentowners, too, and mall development companies are dependent onconsumer spending picking back up in the near future.