Rates a Big Factor in Real Estate Prospects This Year.

New York -- As the real estate sector continued to hold investor interest, REITs turned in a total return of 8.3% for 2005, going by the NAREIT Composite Index, outperforming other market benchmarks for the sixth year in a row.

For 2006, industry analysts expect that the outlook for real estate investment trusts will be dependant largely on interest rates and the performance of the broader stock market.

Michael Grupe, director of research, National Association of Real Estate Investment Trusts, said that for 2006 most Wall Street analysts are looking for total returns of up to 10% in the REIT sector, taking into account only equity REITs for the most part (considering only equity REITs total return for 2005 was 12.2%, according to the Washington-based REIT industry trade association).

As for mortgage REITs, they are more dependent on what happens with the interest rate environment.

The current environment in which the yield curve is relatively flat constitutes a more challenging environment for them than one in which the yield curve is steeper.

Overall, Mr. Grupe sees the outlook for the year as fairly upbeat.

"Most real estate analysts and economists seem to be looking for strengthening of the underlying real estate fundamentals in 2006. I think the economy is expected to continue growing. The demand for space in most areas is expected to pick up somewhat," Mr. Grupe said.