Employee productivity and REIT performance

The impact of employee productivity on real estate investment trust (REIT) performance is examined. Using a sample of U.S. equity REITs from 2003 to 2017, we first estimate parameters of a firm-level production function correcting for endogenous input choices. The coefficient for labor input is statistically significant, indicating that labor productivity is an important component of overall REIT productivity. More importantly, REIT operating efficiency and financial performance are found to be negatively correlated with previous-year employee instability (a proxy for employee turnover), but positively correlated with several lagged employee productivity measures, suggesting that a stable, motivated workforce improves a REIT's operating efficiency and performance. These findings suggest that employees play an important role in REIT operations and that managing employees properly and creating an effective corporate culture are essential to REIT performance.