The recent outbreak of the COVID-19 pandemic has caused unprecedented public health and economic uncertainty creating a substantial spike in fear and negative sentiment. In this paper we attempt to capture this COVID-19-induced aggregate negative sentiment and present a first perspective on the relationship between sentiment and REIT returns during these turbulent times.

Most of the sentiment measures used in real estate literature are survey-based and are administered either monthly or quarterly. The uncertainty induced by COVID-19 has been changing so rapidly within a short span of time that requires capturing changes in sentiment daily. We therefore believe an aggregate sentiment measure computed from daily Google search frequency provides a more accurate and dynamic measure. We construct two measures of COVID-19 related sentiment. Our methodology in constructing such an index is built on the FEARS index constructed by Da, Engelberg and Gao (2015), who use their index to measure its impact on stock market returns, market volatility, and mutual fund flows. 

The first measure captures the health-related fear and panic caused by COVID-19 and we call this measure, Health Fear Index. The second one is a measure of aggregate sentiment related to fear and uncertainty due to the concerns arising from the state of the economy and we term this measure, Economic Fear Index. We then analyze their relationship with REIT returns. This is one of the first few studies examining the impact of sentiment induced by COVID-19 on REIT returns. 

We find that REITs react inversely to changes in both the Health and Economic Fear Indexes with the Health index has a greater impact indicating that increases in fear related to health has greater negative impact on REIT returns than the fear caused by economic downturn. We find that one standard deviation increase in Economic Fear Index leads to 16 percentage point decrease in average daily return of REITs while increase in one standard deviation in Heath Fear Index results in average daily return to fall by 20.68 percentage points. Both these coefficients are significant at the 1% level. These results are consistent across different REIT sectors.

We also examine the varying impact of these two fear indexes in different REIT sector indexes and we find that all the REIT sectors are responsive to changes in both the Health and Economic Fear Indexes with the Health index having a greater impact as seen in individual REITs. We also find that lodging and healthcare REITs are the most responsive to COVID-19 related fear while infrastructure and timber REITs are the least responsive. We find that one standard deviation increase in Health Fear Index leads to a reduction of 62.18 percentage points in average return for lodging REITs. The corresponding reduction in return of Health care REITs is 60.93 percentage points. The decrease in return of infrastructure REITs and timber REITs for one standard deviation increase in Health Fear index is 39.92 percentage points and 25.23 percentage points, respectively.