VanEck Launches REIT ETF Focused on Offices

The fund will give contrarian investors a chance to invest in a beaten-down sector.

VanEck launched the Office and Commercial REIT ETF (DESK) on Thursday, a fund that will give investors an opportunity to invest in an industry that’s suffered since the pandemic. 

The DESK exchange-traded fund holds an index of 25 real estate investment trusts, mostly REITs that own office buildings, but also a few retail and industrial REITs. VanEck said in a press release that DESK is the only ETF that is focused on investing in U.S. office REITs. 

The fund’s focus on office REITs comes as the sector has been under pressure from multiple sources. High interest rates make debt refinancing harder, while vacancy rates are still higher than they were before Covid.  

“These are depressed names, but not unlike what we’ve seen with the housing markets after the 2007-8 crisis aid, which were under severe pressure but over time they’ve come back,” Coulter Regal, a product manager at VanEck, said in an interview. 

Bull and Bear Cases for Office REITs 

For the bull case, Regal pointed out that the number of groundbreakings for new offices has dropped this year, putting a damper on the growth of the supply of office buildings in the longer term. He also cited a Morningstar report that showed a wide variation in vacancy rates across office buildings, with the top 10% of buildings by quality showing decreased vacancies. The report also states that most office REITs primarily hold fixed-rate debt, mitigating the effects of the Federal Reserve's rate hikes. 

The same report also shows evidence for the bear case, which describes the sector as being “under tremendous pressure, with few signs of recovery in sight,” because of workers not returning to offices and lower leasing volume. 

Regal said that VanEck is agnostic about which of these investment theses is true, emphasizing that the ETF was meant for investors who want to bet on the office REITs sector, whether they are long or short. 

The fund has an expense ratio of 0.50%. The average for REIT ETFs is 0.42%.