Property-Focused Real Estate Investment Trusts Are Proving Resilient

This was supposed to be the year of recovery. 

After suffering from half a decade of the COVID-era hangover — while taking the painful medicine of interest rate hikes — real estate investment trusts (REITs) focused on U.S. property were expected to hit the ground running in 2026. 

After all, REITs ended 2025 with solid, if not impressive, metrics: Across every asset class, funds from operations, a proxy for income, rose 6.2 percent on the year; net operating income increased nearly 5 percent; and dividends jumped 6.3 percent, according to the National Association of Real Estate Investment Trusts (Nareit). 

Yet, the first quarter of 2026 brought almost incessant disruption: up-and-down jobs numbers, stubborn inflation, a U.S. government shutdown, war with Iran in the Middle East, the subsequent closure of the Strait of Hormuz, and a spiraling stock market — all of which have impacted REITs. 

“Into the back part of 2025, we saw a lot of activity with public REITs, people were getting excited for 2026, and expected 2026 would be a big year, and that hasn’t exactly come to fruition,” said Spencer Johnson, partner at law firm King & Spalding. 

Many of the most optimistic assumptions were built around an expectation that Treasury yields might finally fall and access to capital would improve, but the return rate on the 10-Year Treasury sat at 4.3 percent in early April, the same level as in January 2026, August 2025, October 2024, and September 2023.  

And then the war came. Since the Trump administration launched attacks on Iran in late February and the Strait of Hormuz became a battleground, the 10-Year hit a six-month high of 4.48 percent on March 27, while the 30-Year Treasury notched its own six-month high of 4.99 percent that same day. 

The FTSE Nareit All Equity REITs Index — the sector’s measuring stick — declined 6.1 percent in March alone, according to Nareit data. 

“It’s a sector that has been out of favor for the longest time. But before conflict started in February, REITs were performing well, the sector was gaining back ground it had lost for so long,” said David Auerbach, chief investment officer at Hoya Capital, a publicly traded real estate research firm. 

As of April 10, New York City’s largest office landlords — SL Green and Vornado, both REITs — have seen their respective stock prices decline 19 percent year-to-date (and roughly 30 percent over the past six months). The share price of Alexandria Real Estate Equities, a REIT that’s the nation’s largest life sciences owner, is down 10 percent YTD and 40 percent since October. Even the largest apartment REITs, Equity Residential and AvalonBay Communities, which play in the ever-dependable multifamily sector, are down 2 percent and 6 percent YTD, respectively. 

“The biggest thing I focus on, day in and day out, is my stock price, and the stock is terribly mispriced — I’m positive of that,” SL Green CEO Marc Holliday told Commercial Observer. “We know what the value of our portfolio is, and I can see the mispricing in the market.”

Even so, despite the disruption, by the end of March, REITs as a whole have still performed better than both the Dow Jones Industrial Average and the S&P 500 in 2026. The FTSE Index posted returns of 3.8 percent at the close of the first quarter, while the Dow Jones fell 3.6 percent and the S&P 500 declined 4.6 percent, per Nareit. 

“REITs are outperforming the S&P, but still have a long way to catch up from the previous several years of underperformance,” said Auerbach. “We’ll take any wins we can, but there’s still a long road to go, as you can imagine.”  

Glimmers of hope

It can’t be understated how significant it is that REITs have been outperforming the stock market (even the NASDAQ 100 fell 5 percent in the first quarter). Slowly, but surely, as real assets emerge as safe havens, institutional investors have found their way back to the REIT space, after several years on the sidelines. 

A survey of U.S. corporate and government pension data found 70 percent of U.S. pension plans invested in REITs in 2025, up from 60 percent in 2019 and only 54 percent in 2015, according to Preqin Real Estate.

“REITs are in an odd spot: It’s the nerdy kid suddenly becoming popular in school,” said Alexander Goldfarb, managing director and senior research analyst at investment bank Piper Sandler. 

“It’s pretty cool, we’re savoring it, not asking a lot of questions,” Goldfarb continued. “And we hope it’s a reflection that the market is finally realizing that steady, hard assets, with an imbalance between supply and demand, and consistent dividends — all that’s accretive to real estate — is drawing in investors.” 

Miles Treaster, president of capital markets for Americas at Cushman & Wakefield, emphasized that the real estate sector, and by extension REITs, ended 2025 with a ton of momentum. U.S. transaction volume hit $461 billion, up 19 percent from 2024 and its highest amount since 2022. 

“This war hit us at a bad moment, because we really had momentum building,” he said. “The pipeline coming into 2026 was really strong, and the conflict hit a pause button.” 

But Treaster added that as Operation Epic Fury, and the immediate ramifications for global trade around the Strait of Hormuz, has shifted calculations of capital markets players and adjusted the framework for deals, the REIT sector has remained a security blanket compared to the broader equities market. That’s due to the unique nature of CRE investments. 

“Relative to where institutional capital is deployed, real estate has been defensive and income generating, and that’s what it’s meant to be at its best,” he said. 

This isn’t new. REITs have been popular with investors for several decades now. While Congress first legislated REITs into being in 1960 — passing a law granting individual investors with access to income-producing commercial real estate portfolios — it wasn’t until the early 1990s that REITs took off and changed the face of investing. 

Following the wreckage of the 1980s savings & loan crisis and the ensuing recession in the early 1990s, both the public and private sectors recognized the need for new sources of funding to ensure commercial real estate recovered. 

On one hand, firms like Nomura Securities issued the first commercial mortgage-backed securities (CMBS) in 1993, creating an entire ecosystem of securitized bonds and fresh capital. On the other hand, Taubman Centers introduced the Umbrella Partnership REIT (UPREIT) during its 1992 IPO, a carve-out that allowed private property owners to transfer their CRE assets into REITs like Taubman Centers on a tax-deferred basis — in turn, giving dozens of private property managers the incentive to enter the public markets as REITs themselves. 

As landlords who lease space and collect rent on their properties, REITs distribute that income to shareholders as dividends. Their unique tax structure requires them to pay a minimum of 90 percent of taxable income to shareholders as dividends each year, and, in return, REITs avoid corporate-level federal income tax. 

This win-win business model made REITs popular with investors and property owners almost immediately: REIT market capitalization rose from $8.7 billion in 1990 to $155 billion by 1998, according to the University of Southern California’s Lusk Center for Real Estate.

“What happens in REITland is you create stable cash-flowing assets, buy them up, and then you pay dividends,” said Toby Cobb, co-founder and managing partner of lender 3650 Capital. “And REITs are known as high dividend-paying stocks — you don’t look for REITs to be worth many multiples of their book. Most of the time you look for them to throw out stable cash flows or a well-paying dividend.”

And, this year at least, prior to the Iran war, REITs had held up their end of the bargain. Until Feb. 28, REIT returns were up 10 percent on the year, with every sector but office generating positive YTD returns. Data centers led the way with a 22 percent gain; self-storage returns were up 17 percent; retail hit a positive 14 percent; and industrial returns notched a 10 percent gain, according to Nareit. 

But, since the conflict began at the end of February, total returns across every REIT sector have been negative except for data centers, the growth of which is barely positive at 1.3 percent. Not for nothing, the FTSE NAREIT Equity Index rose 2 percent in the days following the announcement of a ceasefire on April 7. 

“It’s a tale of two marketplaces that has defined the year so far,” said John Worth, executive vice president for research at Nareit. “Our sense is, given the amount of disruption we’ve gone through, this has shown a pretty good resilience of REITs to broader market disruptions.”

And, if the conflict is soon resolved, with the Trump administration and Iran entering into a shaky ceasefire on April 7, Worth said he expects the various REIT sectors to pick right where they left off before Hormuz closed down. 

“We see that there’s nothing in the fundamentals of REITs that means they can’t get back to where they were coming into the crisis,” he said. 

Rewards and risks

The main reasons REITs have been relatively healthy in 2026, amid so much overall chaos, stems from the diversity of the sectors that make up the publicly traded REIT market. 

For instance, data center giants like Equinix and Digital Realty Trust are thriving. At $1,106 per share, Equinix stock is up 33 percent YTD, while Digital Realty’s $184 stock price is up 19 percent. 

Then you have senior housing giant Welltower, whose stock trades at $204 a share, up 9 percent on the year; industrial behemoth Prologis, which trades at $137, good for a 6 percent positive metric; and retail icon Simon Property Group, which trades at $194, up 5 percent for the year. 

“At this moment, 15 of the 20 sectors that we cover are in the green this year,” said Auerbach. “Data centers are up over 26 percent year-to-date; farmland is doing well, as we’re not building more land, making the existing grass more valuable; and retail also has a lack of new supply.”  

Piper Sandler’s Goldfarb emphasized that REITs are derivative of the entire economy, specifically credit markets, and the 10-Year Treasury has largely hung around 4 percent for three straight years. At the same time, the country added 178,000 jobs in March, helping keep the unemployment rate where it’s been — between 3 and 4 percent — since 2022.  

“There’s narrative and there’s reality, and when you look at real estate, it’s a long multiyear business,” he said. “We’re on an upswing, there’s a lack of supply, there’s healthy occupancies, and, as long as you have that dynamic, we’ll have a strong market.”

Here’s another fun fact: Despite being tied to assets heavily reliant on low interest rates, REITs can actually perform well in variegated rate environments, however counterintuitive that might sound. 

Between 1992 and 2024, in 12-month periods where the 10-Year Treasury rates rose, REITs generated positive returns 78 percent of the time, according to Nareit’s Worth, who added REITs today have the cushion of strong balance sheets, low leverage levels, strong operating performance and well-structured debt (the sector’s weighted average term to maturity is over six years). He noted that REIT net operating income metrics rose 5 percent in the fourth quarter of 2025.

All that said, REITs will go only so far as the general economy, which seems vulnerable at best, and hanging by a thread at worst. 

“If we see a very weak economy, that’s something that will definitely flow through into REIT operations,” said Worth. “A slowing economy is never good for commercial real estate.”

Most risk comes from the correlation between rents and REIT cash flow. King & Spalding’s Johnson noted high inflation, or frozen credit markets, would impact REIT tenants across the board. 

“If your tenant has exposure to dollars from retail consumers, then there’s concern they might get squeezed out,” he said. “You might not have tenants who go into bankruptcy, but you might have tenants that will hold flat [on rent hikes], or negotiate some kind of rent concession.”

Two final places to look when examining the true state of REIT health are sector stock price relative to net asset value (NAV) and the number of share buybacks REITs themselves are engaging in. 

Steve Hentschel, head of M&A and corporate advisory at JLL New York, noted that while REITs have outperformed the S&P 500 this year, the bigger story is that for a better part of the last decade a vast majority of REITs traded at a discount to the value of their assets — meaning that their stock price is lower than the actual per-share value of their underlying assets. 

“That has been a long-term, almost permanent theme, rather than a cyclical trend,” Hentschel said, noting that the discounts, primarily for apartment REITs, have been as high as 25 percent in recent years. 

“There were long periods of time when REITs traded at premium to NAV, which led to more real estate companies going public, so you’ve seen very few REIT IPOs over the last decade,” he added.

2022 marked the first time in 21 years the U.S. REIT space saw zero IPOs, a phenomenon which repeated itself in 2023. 

Hentschel said the main reasons why REITs have traded below NAV are manifold, but they tend to do with the fact that as more REITs have been added into the S&P500, there’s been a dissociation away from the fundamentals of the real estate space. Other reasons for this phenomenon include the volatility of interest rates since 2020. That has hurt REITs, as has the lack of institutional fresh capital in the space compared to sectors like Big Tech. 

But one man’s trash is another man’s treasure, and REIT executives themselves have been jumping in headfirst to buy their own stock, which they perceive as grossly undervalued. REIT share buybacks reached $2.9 billion in the fourth quarter of 2025, up considerably from $1.3 billion the prior quarter, according to Cushman’s Treaster. 

“Management teams don’t buy back stock when they think business is deteriorating — that’s the most credible signal in the market, in my opinion,” he said. 

Auerbach called the high level of share buyback “a bullish indicator,” observing that no one has a better handle on the true value of a portfolio’s assets than the real estate company itself. 

“If anything, [a low market value] presents an opportunity to buy the stock — which we’ve done in the past and may do so again in the future,” said SL Green’s Holliday. “I’m on a path to stay very focused on making sure that people who support this company, or shareholders of this company, are rewarded at the end of the day — and I think we’re making all the right moves.” 

The counterpoint, of course, is that the main way REITs buy back their own stock is by issuing debt, with increased leverage being a metric largely frowned upon by REIT investors, putting a potential self-perpetuating headwind at play when it comes to falling sector stock prices. 

Be that as it may, if there’s one part of the market that plays by its own terms, and draws attention from unexpected places, its U.S. property REITs. 

“REITs pretty much dance to their own fiddle, if you will,” said Jonathan Morris, an adjunct professor at Georgetown University and founder of the REIT Academy education portal. “It’s a very niche industry and the people who are investors in it know what’s going on, they know the metrics, the strategy, what the management is like — they’re wired in.” 

Brian Pascus can be reached at bpascus@commercialobserver.com.