Where REITs Stand in 2026

Many real estate investment trusts (REITs) absorbed everything the market threw at them in 2025, including tariffs, inflation, uncertainty over the direction of borrowing costs, and dividend cuts for investors.

With the cloud of uncertainty far from dissipating as we head into the new year, the likelihood of investors bailing on REITs in 2026 will depend largely on how well managed each individual REIT is, and where the opportunities lie for the organizations that back them.

If anything, the past year has spelled out which REITs will continue to gain investor traction and which ones could be bought up, go private, or continue to depreciate, according to market experts. 

The indications between the good and the bad (and the ugly) will be fairly straightforward for investors, too. Jonathan Morris, an adjunct professor at Georgetown University and founder of educational portal the REIT Academy, explained that the best way to discern a robust REIT in 2026 will be less about dividend cuts — life sciences owner Alexandria Real Estate Equities stopped some hearts by reducing its quarterly cash payout by 45 percent earlier in December — and more about the amount of debt they carry.

A healthy REIT will maintain debt levels under 30 percent, according to Morris, and yet a significant number of the existing 185 public equity REITs carry levels of up to 70 percent of unsecured debt on their balance sheets.

Most of this debt is still carried from July 2020, when interest rates were below 3 percent and REIT managers took advantage of the opportunity by taking out floating-rate mortgages. Rates grew to over 4 percent by the end of 2022. These increasing debt service payments led to more constrained cash flow, plummeting stock prices and — in some cases — potential de-listing from the New York Stock Exchange.

Historically, for equity REITs in particular, the leverage ratio threshold for unsecured debt typically ranged between 45 percent and 50 percent between the 2008 Global Financial Crisis and 2013, then saw consistent growth to 76 percent in the first quarter of 2023, according to a June 2023 report from the National Association of Real Estate Investment Trusts, better known as NAREIT.

By comparison, the last time total debt for equity REITs reached 70 percent was in 2000, and that was primarily at a fixed rate.

Still, the picture may not be as stark as it seems, with about 85 percent of publicly traded REITs having an investment-grade bond rating — meaning they carry a low risk of default — and representing about $1.4 trillion in capital as of the first quarter of 2023, according to Nareit.

In the second quarter of 2024, debt issuance to REITs totaled $12.5 billion, and the average yield to maturity of unsecured debt offerings was 4.5 percent, Nareit said in a report from August 2024. Plus, the average cost of debt was “enviable.”

The leverage ratio is the most important metric for determining the overall health of a REIT’s balance sheet, however, according to Nareit’s John Worth, and that has been falling dramatically throughout the 2010s.

“Even in this period of higher interest rates, REITs have been able to maintain very, very low leverage ratios — 33 percent is around the historic average for the last 10 years — and have been able to manage their overall cost of debt,” Worth said. “The reason why they’ve been able to do that is because so much of their debt is fixed-rate, they’re close to 90 percent fixed-rate debt, and they locked it in for a lengthy period.”

Weighted average terms for maturity were 7.2 years in the aftermath of COVID-19, but terms have now shrunk to 6.2 years as REITs have held debt on their balance sheets instead of refinancing at higher rates.

Unsecured debt has been an attractive option for REITs because it allows them to raise a high level of funding within just days.

“If you’re an investment-grade, credit-rate REIT, you can go out and in a matter of days raise $1 billion, $2 billion, $5 billion depending on your size because those markets are very large, they’re very liquid,” Worth said. “There’s a whole set of investors [insurance companies, pensions and other investors who typically are holding the investment-grade corporate bonds] who like holding REIT debt.”

The most recent data from Nareit placed the average debt ratio of REITs at 32.9 percent in the second quarter of 2025.

REITs will end 2025 up by about 3 percent in total returns, a far cry from the upside seen in the S&P 500, but that divergence cycle always closes, according to Worth. And when the two converge, historically, REITs perform better than the S&P 500.

REITs such as office owner BXP, Sun Belt-centric office firm Cousins Properties and West Coast life sciences and mixed-use developer Kilroy Realty have been sidestepping higher debt and achieving high occupancy rates and making strategic acquisitions. Institutional investors will continue to support these “blue chip” REITs, according to Morris.

Playing the long game, these REITs will likely see continued interest — despite BXP announcing a 29 percent reduction in its quarterly dividend payments over the summer in order to reinvest $50 million and strengthen its balance sheet. With BXP stock trading around the high $60s to low $70s per share, its outlook is good with fair value around $90, according to Morris.

Individual investors — investing via brokerage accounts, retirement accounts or mutual funds — often have a different perspective, however. 

“Individual investors, sadly, own three or four different REITs, and if any of them cut their dividend, they get real down on REITs,” Morris said. “They get negative about it, and that’s the fear I have — that a handful of poorly run public REITs cut their dividend or halt their dividend.”

BXP justified its dividend cut by citing the need to raise capital to build a $2 billion office tower at 343 Madison Avenue, viewing the development as a profitable investment that will add Class A inventory to the already tapped supply of premium buildings in Manhattan.

In the case of BXP, investors may also be looking to offset the dividend reduction by reviving its underperforming stock price by offering CEO Owen Thomas a $25 million bonus if he can double its price per share from roughly $60 to $120, closer to where it was before the pandemic, according to Crain’s New York Business. (BXP didn’t  respond to a request for comment.)

Even more damaging to the good name of a REIT than dividend cuts can be reverse stock splits, which can run off savvy institutional investors and leave individual investors with a rapidly depreciating stock if the company reduces the number of shares and put them on the market at a higher price.

“A couple of public REITs were trading at like $1.10 or $1.25, and they were worried that it was going to drop under $1. So they did these reverse splits, one for 10, not 10 for one,” Morris said. “Their stock would immediately jump to $10 a share, which gets them out of the danger zone of being de-listed.  One of the ones that I’m telling you about that went from $1 to $10 is now down to about $6 or $7, because people know it’s a stinker. It kind of woke them up and they said, ‘F–k, that’s not $10, it was $1 last week.’ ”

Investors learning about reverse stock splits and dividend cuts after the fact — often through media reports — then turn away from those REITs, which adds further credence to well-run REITs that provide high-quality transparency to shareholders.

The past few years have been a roller coaster ride for the REIT landscape, with plenty of shake-up. 

Since 2022, when interest rates began to climb, 41 public REITs have been sold to private equity firms, merged into other public companies or liquidated, with mortgage REITs in particular being absorbed by other entities. That ultimately could be beneficial to shareholders, according to Hoya Capital, a research platform that studies REIT performance. 

Fourteen of these acquisitions took place in 2025, the highest since the firm began tracking what it calls the “Exodus from REIT Land” on LinkedIn.

One example of this would be mortgage servicing REIT Two Harbors Investment Corporation rallying 12 percent after a mid-December agreement to be acquired by mortgage lender UWM Holdings in an all-stock deal valued at $1.3 billion.

This followed a $375 million cash settlement, about 13 percent of its book value, in a years-long battle between Two Harbors and its former external manager Pine River, which led to its stock value diving 50 percent.

Global alternative asset manager Rithm Capital also bought itself an early Christmas gift by acquiring the embattled office REIT Paramount Group for $1.6 billion, or $6.60 a share, with plans to fully integrate the 12 million square feet of office in New York and San Francisco under its own banner.

Paramount’s fall to private equity began in March 2025 due to the REIT losing a number of major tenants. For example, J.P. Morgan vacated its 244,000 square feet at One Front Street in San Francisco, and SVB Securities terminated its 139,176-square-foot lease at 1301 Avenue of the Americas, as CO previously reported.

With blue chip firms like BXP cutting dividends and investor SL Green Realty — the largest office REIT in New York City but also one whose stock has seen plenty of highs and lows — switching from a monthly to a quarterly dividend, anything seems to be on the table, said Hoya Capital’s David Auerbach.

“I think a lot of these companies are basically trying to say, look, we’re putting up crazy numbers. We’ve been very passive or conservative on our dividend policy because we don’t want to overpay our dividend,” Auerbach said. “We would rather be more conservative, have money for a rainy day, use it for opportunities to go out and acquire properties. … A lot of these companies will say we could significantly raise our dividend. We choose not to, because we would rather, you know, grow into it further.”

De-listings on the NYSE are less common than REITs going private, according to Auerbach. But when trouble appears on the horizon, like with dividend cuts or selloffs, there are a variety of different responses from investors.

“You have a certain sleeve of investors, frankly, that double down because it’s like, ‘Wait a second, the value of this real estate is worth so much more than where the stock is trading. So this is an opportunity,’ ” Auerbach said. “There are folks that get spooked. There’s also sympathy selloff in peers that have potentially a similar focus, like with [Alexandria] when that happened, that it carried over to Healthpeak and Kilroy and some of the other guys that have life science exposure. People are still expecting life science to be like what was happening during COVID. And, frankly, it’s a different world these days.”

Alexandria didn’t exactly get the white-glove treatment from 2025 with its exposure being mainly to life science properties, which have been hit hard by many of the federal funding shifts in recent years going back to the Biden administration. Leasing in this asset class has slowed, and tenants are getting less government money to fund research.

The REIT saw a net loss attributable to common stock holders more than double in the third quarter to $234.9 million compared to the $109.6 million in the second quarter.

“A very low interest rate environment … incentivized really foolish speculation by financially motivated real estate companies, and their even more foolish capital partners​​,” Joel Marcus, Alexandria’s founder and executive chairman, said during the earnings call in October. “This brought an unwanted, unnecessary oversupply of many of the innovation submarkets, which had never happened in this real estate niche before.”

Marcus suggested that other real estate firms recklessly entering the life sciences space saturated the market.

Issues with balance sheets were not the only reason for 2025’s wave of mergers and acquisitions, Worth said. Even if the financials weren’t perfect, the value of their portfolio was the main reason for acquisitions taking place.

Either way, many of the companies exiled from “REIT Land” have been relatively small in terms of market capitalization, according to Worth.

“We’re talking about a tenth of a percentage point, two tenths of a percentage point,” Worth said. “I think that was more of a metric about their underlying performance versus the value of the assets as well as their scale. … If some REITs don’t get to scale, it’s hard to get attention from investors and your performance where it needs to be.”

Mark Hallum can be reached at mhallum@commercialobserver.com.