The first quarter of 2025 showed an interesting contrast in market performance. REITs gained 2.8% while the S&P 500 dropped 4.4%. This defensive asset class proved its resilience amid market chaos. The trend continued into early April as markets took a dive. REITs showed more stability than broader indices and delivered returns about 4% higher than the S&P 500, according to UBS analysis.
You might wonder if REITs make sense as investments in uncertain times. The data definitely points to yes. These investments shine during market volatility, especially with their limited international exposure and defensive characteristics. Different types of REITs show varying performance patterns. Multifamily assets stand out as they’ve maintained positive returns through six major market crashes. This stellar track record helps explain why investor interest in apartment assets hit a record 71% in Q1 2025 – the highest level since records began in 2011.
How REITs Behave During Market Chaos
Market turmoil sends investors running for safety. REITs have been a safe haven during these stormy times. These investments work differently from regular stocks and bonds and can shield portfolios when markets get rough.
REITs vs. stocks and bonds in volatile markets
Most investors know they should spread their money between stocks and bonds. Yet they don’t use REITs enough, despite their track record of strong returns. The numbers tell an interesting story – REITs have kept pace with both stock market and bond returns since 1972.
REITs move differently from the broader market, with correlations ranging from 45% to 60%. This makes them great for spreading risk, especially when markets tank. J.P. Morgan’s research showed that private real estate delivered positive returns in 17 of the 20 worst quarters between 1990 and 2008. During this time, a typical 60/40 stock-bond mix lost money.
Adding REITs to regular investment portfolios has boosted risk-adjusted returns. Portfolios with 10%, 20%, and even 33.3% in REITs showed better Sharpe ratios than those without them. This shows they deliver better returns for the risk taken.
Why REITs are seen as defensive assets
REITs’ defensive strength comes from their steady rental income. Commercial property leases create reliable cash flows that lead to steady earnings and dividends. This predictable income helps keep share prices stable.
Research backs up REITs’ defensive nature. Their betas work differently in up and down markets. A study found apartment REITs had a 1.0288 beta in rising markets but just 0.0513 in falling ones. This means a 1% market drop led to only a 0.05% fall in these REITs – that’s impressive protection.
REITs must pay shareholders at least 90% of their taxable income as dividends each year. This creates steady income even when markets get shaky. These payments have helped investors weather bear markets.
The role of real assets in uncertain times
Real assets like REITs shine during inflation, rising rates, and market volatility. A mix of real assets has delivered good returns with less volatility than global stocks.
Real assets face fewer tariff issues than other investments and their earnings stay predictable. This helps them perform well in uncertain market conditions.
REITs can protect against losses when they trade well below their net asset value. Right now, core real assets look much cheaper than global stocks.
Different types of REITs react differently to market chaos. Healthcare and infrastructure REITs, which people always need, usually do better in downturns. Shopping malls, hotels, and luxury properties tend to see bigger price swings.
REITs got stronger before COVID-19 hit. Regulators pushed them to reduce debt levels. This made them tougher – their average loan-to-value ratio dropped to 33% from 38% during the 2008 crisis.
Key Factors Impacting REITs in 2025
The REIT landscape of 2025 faces major changes due to several key economic factors. These changes affect property sectors differently. Real estate investors need to get a grip on these changes in today’s unpredictable market.
Tariffs and global trade tensions
March 2025’s sweeping tariffs created major market upheaval. President Trump’s administration placed 25% tariffs on imports from Canada and Mexico, with Canadian energy getting 10%. Chinese goods saw their tariffs double from 10% to 20%. US steel and aluminum imports faced additional 25% tariffs. Trading partners responded quickly with their own measures.
Markets reacted strongly. Total returns dropped across all 13 equity REIT sectors after the April 2nd announcement of matching tariffs. Each sector felt different effects:
- Industrial REITs took the biggest hit at -18.9%
- Lodging/resorts dropped by -16.0%
- Timberland fell by -15.0%
- Telecommunications and data centers proved more stable with -7.3% and -8.4% drops respectively
Most sectors bounced back after a brief pause in higher matching rates. Data centers, telecommunications, and specialty sectors were the only ones showing positive returns between April 2-30.
These tariff policies mean both short-term challenges and long-term planning needs for REITs. Turner Construction’s Q1 2025 Building Cost Index shows construction costs rose 3.8% compared to last year.
Interest rate fluctuations
Interest rates play a crucial role in REIT performance for 2025. The 10-year Treasury yield sat 39 basis points higher than September’s end on November 29, 2024. This happened despite easier monetary policy. Long-term rates don’t match Fed policy, which creates market uncertainty.
The 10-year Treasury yield should stay between 3.5% and 4.0% in 2025. This range lets REITs refinance debt at reasonable prices but won’t push commercial real estate values much higher.
Lower interest rates could help REITs a lot. REITs do well when financing is cheap and readily available. The Fed plans more cuts to the fed funds rate in 2025. But REITs respond more to long-term rates, which have risen since the Fed started cutting its benchmark rate.
REITs have done well historically when long-term rates rise. They averaged 16.55% returns over four quarters during these periods. Between Q1 1992 and Q4 2023, they showed positive total returns 82% of the time when Treasury yields increased.
Inflation and consumer demand shifts
The 2025 economic outlook puts inflation at the top of REIT concerns. Higher tariffs and trade conflicts might slow growth and hurt the economy.
REITs offer built-in protection against inflation. Real estate’s rents and values tend to rise with prices. This helps REIT dividends grow even during inflationary times. REIT dividends have beaten inflation (measured by Consumer Price Index) in 18 of the last 20 years.
Properties with steady cash flows from long-term leases and rent increase clauses handle inflation better. Many leases include yearly rent increases tied to consumer price index changes or fixed rates between 2% and 4%.
Real estate fundamentals look like they’re hitting bottom in 2025. Sunbelt apartments, industrial properties, and self-storage facilities show signs of recovery as extra space gets filled.
REITs face challenges from tariffs, uncertain interest rates, and changing consumer needs. Their track record during economic changes shows they’re still a good choice for strategic investors in 2025.
Which Types of REITs Are Performing Best
The REIT landscape in 2025 shows clear winners and losers across property sectors. Some sectors display remarkable strength despite market hurdles.
Multifamily and residential REITs
Multifamily REITs lead the pack with 29.19% returns in the last year through March 6. Their success comes from high occupancy rates, steady rent growth, and better collections. Coastal portfolios shine brightly. AvalonBay’s occupancy rates climbed while Essex improved its rent collection. Los Angeles saw delinquencies drop from 3.9% to 1.3%. Equity Residential hit 96.5% occupancy and saw its lowest tenant turnover ever.
Sun Belt multifamily REITs kept their momentum despite supply issues. Camden’s occupancy reached 95.4%, and MAA held steady occupancy even with slight rent adjustments. UDR’s turnover hit a 10-year low, showing how tenant retention has become crucial.
Industrial and logistics REITs
Industrial REITs delivered 3.8% total returns year-to-date, beating the broader equity REIT market’s 0.7%. Their strength shows in same-store net operating income, which grew 5.8% year-over-year. These REITs’ occupancy stayed above 95% for 38 straight quarters, showing rock-solid stability.
E-commerce growth powers these REITs, with global B2B e-commerce expected to hit USD 36 trillion by 2026. Their healthy balance sheets show 90.2% unsecured debt and 95.4% fixed-rate debt, setting them up for future growth.
Retail and hotel REITs
Retail REITs grew moderately, rising 5.5% in the last 12 months. Grocery-anchored and essential retail spaces performed well. Brixmor Property Group raised its guidance based on strong leasing.
Lodging/resorts REITs struggled, dropping 17.2% through March 31, 2025. Inflation worries and weak consumer confidence hurt performance. In spite of that, these REITs offer 5.6% dividend yields, compared to the broader REIT index’s 4.0%.
Office REITs and their challenges
Remote work trends and higher capital costs create headwinds for office REITs. National office vacancy hits 20.6%, making rent growth tough. Quality matters here – prime locations outperform by over 300 basis points in vacancy rates.
Office REITs slashed dividends, with Vornado Realty Trust stopping payments entirely. These REITs now focus on adding amenities and investing in life sciences to stay afloat.
Communication infrastructure REITs
Communication infrastructure REITs face slow leasing activity. T-Mobile leads mid-band 5G deployment, while Verizon rolls out C-band spectrum, creating select leasing opportunities. Experts predict better leasing in 2025 than 2024, with possible improvements in 2026.
The sector offers solid dividends and vital digital infrastructure. American Tower’s expansion into data centers helps broaden its revenue. While AI hasn’t boosted tower usage yet, future tech advances could drive network demand higher.
Investor Sentiment and Capital Flows
REIT capital flows in 2025 tell us a lot about how confident investors feel, and there’s a clear split between how institutions and private investors approach their strategies.
Private vs. institutional investor behavior
REITs have become crucial parts of institutional investors’ real estate portfolios. A newer study shows that 88% of investors see REITs as real estate investments, and 89% plan to keep or boost their REIT allocations in the next three years. All but one of these largest North American investors (56%) include REITs in their real estate strategy, while this number jumps to 64% for the biggest global investors.
Private placement NAV REITs earned a 1.2% total return in Q1 2025, showing their strength during market ups and downs. These private REITs managed their redemption pressures well through smart liquidity management and asset sales, even though they didn’t match public indices. This stability caught everyone’s attention when public indices fell to -2.1% year-to-date returns by late April.
Liquidity marks the biggest difference between private and public REITs. Private real estate typically doesn’t follow public markets as closely, which might help protect portfolios when markets get rocky.
Why apartment REITs are attracting capital
Apartment REITs have become hot investments. Their prices sit about one-third below their actual property values, which creates some great buying opportunities. Their revenue streams look strong and growing, and experts think rents will keep rising for the next five years.
Big institutional investors love this sector. The 200 largest retirement plans grew their REIT assets by 22% to $34.20 billion. The New York State Common Retirement Fund just put $15 million into a fund that buys apartments, which shows this trend in action.
Hold strategies vs. active buying
Today’s investment world shows an interesting mix of holding and buying strategies. More private-equity fundraising combined with cheaper REIT valuations might lead to more companies going private. REITs have better access to capital than private market players, which helps them grow and hit their strategic targets.
The gap between public and private market values keeps shrinking as private funds value assets closer to actual sale prices. This lets public REITs buy assets from the private market at better prices.
Deal activity should pick up through 2025, which could boost FFO per share growth if REITs can find good financing. Some companies see chances to fund new purchases entirely with debt soon, thanks to their strong balance sheets.
Are REITs a Good Investment in 2025?
The numbers make a strong case for REIT investments as we head into 2025’s economic uncertainty. Traditional investments struggle under market pressure, and REITs emerge as an alternative that deserves a closer look.
Risk-adjusted returns and income stability
Industry experts project REITs to achieve a modest 9% total return in 2025 while high interest rates continue to pose challenges. This return outpaces many traditional investment options in the current volatile market.
REITs stand out for their income potential—they must pay out at least 90% of their taxable income as dividends. This rule results in dividend yields that exceed other equity investments. The FTSE Nareit All Equity REITs Index showed a 3.96% dividend yield as of March 31, 2025, which nearly tripled the S&P 500’s 1.30%.
The sector outlook shows industrial REITs leading the pack in 2025. Lower supply, strong fundamentals, and attractive valuations drive this growth. Residential REITs should also perform well as new construction slows down.
How to invest in REITs during uncertainty
The current market suggests these smart approaches:
- Find REITs that trade at significant discounts to underlying net asset value to get better downside protection
- Focus on sectors with strong demand drivers (industrial and residential)
- Choose REITs that maintain low-leveraged balance sheets with acquisition capabilities
Self-storage facilities and REITs with triple net leases make stable choices in volatile times. The market also favors single-family rental homes, coastal apartments, and manufactured homes for their stability.
Diversification benefits of REITs
REITs show low-to-moderate correlation with other assets, which helps smooth out portfolio returns. This feature proves especially valuable during market upheavals.
Studies back this up—portfolios that include REITs alongside stocks and bonds historically achieved higher returns, maintained similar volatility, and delivered better risk-adjusted performance. Portfolios with 10%, 20%, and 33.3% REIT allocations demonstrated improved risk-adjusted returns compared to those without REITs.
REITs offer this advantage because they respond to different market forces. Unlike regular stocks, equity REIT stocks don’t price in systemic volatility risk. This makes them less reactive to the total volatility seen in major S&P 500 stocks.
Conclusion
The REIT Resilience Factor
REITs showed remarkable strength during the market turbulence of early 2025. These investments outperform major indices and provide stable income streams while other investors scramble for shelter from volatility.
REITs possess fundamental advantages over traditional investments. Their contractual income structure, dividend requirements, and lower correlation with broader markets protect capital during uncertain times. These investments also serve as natural inflation hedges and offer diverse sector options that work well in any economic condition.
Each REIT sector tells a different story. Multifamily and industrial sectors display exceptional strength. Office and lodging REITs struggle with substantial headwinds. This contrast emphasizes why investors should be selective rather than treating REITs as one unified asset class.
REITs have successfully handled tariffs, interest rate changes, and evolving consumer demands throughout their history. They deliver competitive returns with less volatility than global stocks, making them a valuable addition to any diversified portfolio.
Your investment strategy for the rest of 2025 should include a 10-20% allocation to REITs to improve risk-adjusted returns. Look for sectors with strong demand drivers like residential and industrial properties. Choose companies with low leverage and attractive valuations compared to their net asset value.
Numbers tell the story—REITs are great for income potential, diversification benefits, and protection during market chaos. While past performance never guarantees future results, REITs’ structural advantages suggest they’ll remain valuable portfolio components whatever economic surprises emerge ahead.
