Commercial Real Estate – Declining Market – ETF Short Options

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The pandemic has had a significant impact on US downtowns, with occupancy rates in office buildings dropping from 95% to 47%. The resulting reduction in foot traffic and public transit use has caused many downtowns to feel like ghost towns. While the demand for housing in cities has increased, the conversion of empty offices into apartments and condos has been sluggish. The declining economic activity in urban cores and lower tax bases could mean fewer jobs and reduced government services, perpetuating a vicious cycle that leads to more decline, crime, and lower quality of life.

The increased use of remote work has also led to increased cancellations of office leases, which has cratered the office real-estate market. Across the country, public-transportation ridership remains stuck at about 70% of prepandemic levels. The decline in foot traffic has also led to deteriorating business corridors, and cities are starting to feel the pinch of reduced tax revenue and sales receipts for small businesses.

The impact of the pandemic on downtowns is still playing out, but it is clear that an office-centric downtown is soon to be a thing of the past. Without more-robust policies to address failing downtowns, cities are going to start hurting. It remains to be seen what empty skyscrapers will become, but the death of great American downtowns is an unmistakable shift in the country’s largest cities.

While some companies have started to force workers back into the office, even in cities where more workers have returned, like Austin or Dallas, occupancy rates are still only 60% of what they were before the pandemic. In New York, about 50% of workers are back in the office.

With occupancy rates high, commercial real estate could be in trouble, here are some ETFs that short the commercial real estate market.

ProShares Short Real Estate ETF (REK):
The ProShares Short Real Estate ETF (REK) is an exchange-traded fund that seeks to provide investors with inverse exposure to the Dow Jones U.S. Real Estate Index. The fund aims to provide daily returns that are the inverse of the index’s daily returns, so if the index falls, the fund should rise in value.
Top Holdings
Prologis Inc.
American Tower Corp.-Class A
Equinix Inc.
Crown Castle Inc.
Public Storage

ProShares UltraShort Real Estate ETF (SRS):
The ProShares UltraShort Real Estate ETF (SRS) is an exchange-traded fund that seeks to provide investors with 2x inverse exposure to the Dow Jones U.S. Real Estate Index. The fund aims to provide daily returns that are twice the inverse of the index’s daily returns, so if the index falls by 1%, the fund should rise by 2%.
Top Holdings
Prologis Inc.
American Tower Corp.-Class A
Equinix Inc.
Crown Castle Inc.
Public Storage

Direxion Daily Real Estate Bear 3x ETF (DRV):
The Direxion Daily Real Estate Bear 3x ETF (DRV) is an exchange-traded fund that seeks to provide investors with 3x inverse exposure to the MSCI US REIT Index. The fund aims to provide daily returns that are three times the inverse of the index’s daily returns, so if the index falls by 1%, the fund should rise by 3%.
Top Holdings
Prologis REIT
American Tower – Class A REIT
Equinix Inc Common Stock REIT
Crown Castle International
Public Storage REIT

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