Public REIT Returns Rose 5% Overall in 2024, Dipped in December

The public market for real estate investment trusts (REITs) enjoyed a strong 2024, rising just under 5 percent on the year, but an investor flight to higher Treasury yields brought negative returns across the board for the index in December, with total returns declining by 8 percent. 

The data comes from the National Association of Real Estate Investment Trusts (NAREIT) examination of 2024 performance of the FTSE Nareit All Equity REITs Index, a public investment market that spans all asset classes REITs manage and invest in. 

“December was a tough month for REITs across all property sectors,” wrote author John Barwick, a researcher at Nareit. “REITs rose 4.9 percent in 2024 while facing considerable headwinds in December, as the FTSE Nareit All Equity REITs Index posted its worst monthly performance of the year.” 

Moreover, rising 10-year Treasury yields harmed investor sentiment for public REITs, as total returns for REITs declined by 9 percent between September and December, precisely the time the yield on the 10-Year Treasury rose from 3.8 percent on Sept. 30 to 4.6 percent on Dec. 27. 

This follows a familiar pattern of REIT returns declining as 10-year Treasury yields rise. Between Dec. 31, 2021, and June 30, 2023, the 10-Year Treasury rose 342 basis points, but REITs total returns declined by 32 percent. When the 10-Year Treasury declined 120 basis points in the second half of 2023, public REIT total returns rose 23 percent. 

Concerns about inflation — particularly since President-elect Donald Trump won election in November — have helped press yields on bonds higher. The yield on Treasurys is a function of what the market is willing to pay for longer-term debt. To entice investors over a decade-long or 30-year-long period amid high inflation, yields rise as investor sentiment wanes and prices decline. 

So on the whole, 2024 saw public REITs returns increase on the year — as the 10-Year Treasury fell to as low as 3.6 percent in early September — but also struggle to maintain positive investor sentiment once December began. 

“The beginning of December has presented some headwinds for REITs as the All Equity REITs index has declined 3.6 percent through Dec. 10,” Barwick wrote last month. “The rate of disinflation has slowed in recent months, leaving investors with some uncertainty as to the magnitude and timing of future rate cuts, though most investors continue to expect a 25 basis point cut in December.”

Despite the uncertainty around interest rates, certain property sectors in the public market performed better than others in 2024, with retail, office and residential REITs all generating positive returns. 

Retail REITs saw total returns of 14 percent, led mainly by a 27 percent positive return for regional malls and a 17 percent positive return for shopping centers. Office REITs generated strong capital markets interest and rewarded investors with returns of 21.5 percent, after generating losses of 37.6 percent in 2022. Residential REITs also continued an upward march, with the sector as a whole generating 12.5 percent positive returns, and apartments bringing home 20.5 percent positive returns. 

Other sectors that did well in 2024 include data centers, with 25.2 percent positive returns, and health care REITs, which had 24.2 percent positive returns. On the other hand, industrial REITs experienced losses of 17.8 percent in 2024. 

Franz Colloredo Mansfeld, CEO and founder of Cabot Properties, an industrial investment firm, told CO that the sector was the victim of unfavorable supply dynamics following COVID-19 and weaker leasing in 2024. 

“The industrial property business dynamic was that we were seeing slowing growth,” Mansfeld said. “We went through a boom during COVID, and during the aftermath it was generally positive. But coming out of COVID we had a lot of new supply delivered, and then we surprisingly saw weaker leasing than we anticipated.”

Brian Pascus can be reached at bpascus@commercialobserver.com