REITs Weather Volatility, Remain Well-Positioned for Future Growth

Strategic Insights -

As the economy navigated heightened uncertainty and dramatic market dips in the first half of 2025, REITs and commercial real estate appeared to exit the ride in a similar place as where they started, while broader financial markets also exhibited similar overall performance. Despite a solid start to the year, economic and financial market turbulence, linked to new directions in trade policy and growing concerns about the sustainability of the US fiscal trajectory, sent equity, debt, and property markets into sharp declines. Recent indications suggest that the roller coaster ride may be restarting, but REITs are confident in their ability to stomach the ride and find opportunities during an extended period of heightened volatility.

Key Takeaways:

  • REITs are positioned to weather any potential fluctuations due to their solid property operations and strong balance sheets.
  • The net effects of REIT return movements related to tariff actions were generally neutral, but they varied widely across sectors.
  • REIT total returns have been positive year-to-date through June 30, with the Russell 1000 and FTSE Nareit All Equity REITs indices posting positive total returns of 6.1% and 1.8%, respectively.
  • Rising and/or high( er) interest rates have been a source of worry for many CRE investors, but increasing and/or elevated interest rates do not necessarily equate to weak, or poor, real estate performance.
  • Factors that provide REITs with a competitive edge over typical CRE investors include their market pricing, best-in-class operational expertise, disciplined balance sheets, and efficient access to cost-advantaged capital.
  • REITs have been and continue to be well-equipped to weather potential future market turbulence, with a new world order emerging due to tariff actions, higher 10-year Treasury yields, and declines in the US dollar.
  • The charts above exhibit the Bloomberg Consensus Forecast Survey's probability of a recession in 12 months, the Cboe VIX Index, and the Baa corporate bond yield spread over 10-year Treasuries for January 2025, the post-Liberation Day peak, and June 2025.

Statistics:

  • 10-year Treasury yield at the end of June 2025 was 4.2%.
  • Average cost of REIT total debt increased by 0.9% from the fourth quarter of 2021 to the first quarter of 2025.
  • Number of years through 2024 that North America was the top-performing region for global REITs was 7.
  • Average annual total return for global REITs across North America over the last 10 calendar years was 4.9%.
  • Total return for Europe through mid-year 2025 was 24.6%.
  • Total return for Asia through mid-year 2025 was 14.7%.

Sources:

  • National Association of Real Estate Investment Trusts (NAREIT)
  • Edward F. Pierzak
  • John Worth
  • Bloomberg Consensus Forecast Survey
  • Cboe VIX Index
  • Baa corporate bond yield spread over 10-year Treasuries