Mind on the Market

REIT resilience extends beyond interest rates

REITs have outperformed broader equities in 2026, as improving property fundamentals, secular growth themes, and healthy balance sheets help offset pressure from elevated interest rates over the year.

31 August 2026

Christine Norton, CFA

Investment Strategist

Dane Smith

Head of North American Investment Strategy & Research

Data centers have increased the REIT market’s exposure to the AI investment cycle, but that shared exposure has not caused real estate and technology stocks to move in lockstep. Although data center REITs and semiconductors have both been among the year’s strongest performers, their paths have differed considerably. For example, in July semiconductor stocks sold off sharply while data center REITs advanced, and in August technology stocks outperformed as broader REIT returns softened. These divergences helped push correlations lower, highlighting that REIT returns remain influenced by a distinct set of property and market fundamentals.

Weekly Highlights

US REITs vs. S&P 500 Information Technology Correlation -0.29

FTSE EPRA Nareit USA Index YTD Total Return 19.53%

Change in Data Center REIT Weight within the US REIT Index +15.64%

Source: S&P Dow Jones Indices, FactSet and Nareit. Correlation calculated using 60 trading days of daily returns as of 8/25/2026. FTSE EPRA Nareit USA Index data as of 8/26/2026.

REITs beyond rates

Real estate has quietly become one of the market's better-performing sectors in 2026. After struggling through the post-pandemic rate shock, REITs have outperformed the broader equity market this year despite elevated Treasury yields, affordability pressures in housing, and persistent concerns surrounding commercial real estate.

The strength of the sector challenges the conventional view that REIT performance is driven primarily by interest rates. While higher yields remain a headwind and REITs continue to show sensitivity to daily rate movements, improving fundamentals, secular growth themes, and healthy balance sheets have become increasingly important contributors to returns.

The Real Estate sector of the S&P 500, which includes REITs along with real estate management and development companies, has returned 14.66% year-to-date, ahead of the S&P 500's 12.97% return. The FTSE EPRA Nareit USA Index, which captures a broader universe of publicly listed real estate companies and REITs, has performed even better, returning 19.53% year-to-date.

Over the past decade, the REIT market has evolved meaningfully, reflecting both technological change and demographic shifts. Traditional property sectors such as office, retail, and lodging account for a smaller share of the market today, while data centers, industrial, and healthcare REITs have become increasingly important contributors to earnings growth.

Data centers have been among the clearest beneficiaries of the AI investment cycle. As companies continue investing in AI infrastructure, demand for data center space has surged. Healthcare REITs have likewise benefited from favorable demographic trends. An aging US population is supporting demand for senior housing and other healthcare-related properties, while limited new supply has helped improve occupancy and pricing power across several healthcare subsectors. These trends have been reflected in sector performance, highlighting the growing importance of long-term secular growth drivers within the REIT market.

Lodging and resort REITs have been the strongest performers this year, returning 40.04%, supported by resilient leisure spending and a continued recovery in business and group travel. The sector's strength defies concerns that a slowing economy and a weakening consumer would weigh on discretionary travel activity.

Residential REITs, by contrast, have lagged this year, though underlying fundamentals have varied considerably across regions. Demand for rental housing has remained resilient, supported by elevated home prices, higher mortgage rates, and affordability challenges that continue to make renting an attractive alternative to homeownership for many households. However, markets with significant multifamily construction activity have still faced pressure on rent growth as new supply has outpaced demand. In contrast, many Northeast and coastal markets have remained more resilient, benefiting from more limited additions to housing stock and tighter supply-demand dynamics. As a result, the residential REIT landscape remains increasingly bifurcated, with performance driven by both local market fundamentals and broader housing trends.

Greater exposure to structural growth themes may help explain why the sector has proven more resilient in a higher-rate environment than many investors anticipated. At the same time, many REIT sectors continue to be driven by property-level supply and demand dynamics rather than the technology spending cycle, providing investors exposure to a broader set of return drivers than those found in increasingly AI-focused equity markets.

Importantly, this resilience has been supported by improving operating fundamentals across much of the sector. Funds from operations, or FFO, which measures the cash flow generated by REIT operations, increased 12.4%¹YoY in the second quarter, with 72% of REITs reporting growth. Net operating income, or NOI, rose 6.8%, led by healthcare, data centers and specialty REITs.

Balance sheet positions have been another factor supporting REIT performance. Despite concerns that higher interest rates would weigh heavily on earnings, most REITs entered this period with conservative leverage, long-dated debt maturities and limited exposure to floating-rate borrowing. Approximately 90% of REIT debt is fixed rate and the average debt maturity is about six years. As a result, much of the sector was able to lock in financing costs before rates moved sharply higher, helping shield cash flows from rising borrowing costs.

Credit markets appear to share this constructive view. REIT credit spreads remain relatively contained despite elevated Treasury yields, suggesting investors view balance sheet risk as manageable and refinancing concerns as more limited.

Ultimately, 2026 has shown that interest rates are only one part of the REIT story. Higher yields remain a headwind, but improving property-level results and healthy balance sheets have helped the sector manage that pressure. At the same time, the outlook varies considerably by property type. As the composition of the REIT market continues to evolve, investors may increasingly need to evaluate the asset class through a combination of earnings growth and secular demand rather than interest rates alone.

Source: FactSet, Nareit, State Street Investment Management. Data as of 8/26/2026 unless otherwise stated. The performance data quoted represents past performance. Past performance does not guarantee future results. Investing involves risk, including the risk of loss of principal.

Go beyond the headlines...

Skimmed the summary? Dive deeper with the full PDF—your go-to for weekly market insights and analysis.

Download PDF

Footnotes

Disclosure

Marketing Communication

statestreet.com/im

State Street Global Advisors Worldwide Entities

State Street Global Advisors (SSGA) is now State Street Investment Management. Please go to statestreet.com/investment-management for more information.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data.

The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2014/65/EU) and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor's or potential investor’s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor.

The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable regional regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

The performance data quoted represents past performance. Past performance does not guarantee future results. Investing involves risk, including the risk of loss of principal.

Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.

Diversification does not ensure a profit or guarantee against loss. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses associated with the fund or brokerage commissions associated with buying and selling a fund. Index performance is not meant to represent that of any particular fund.

The views expressed in this material are the views of Christine Norton and Dane Smith through the period ended August 27, 2026 and are subject to change based on market and other conditions.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events or developments that SSGA expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by SSGA in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond SSGA’s control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions.

Companies with large market capitalizations go in and out of favor based on market and economic conditions. Larger companies tend to be less volatile than companies with smaller market capitalizations. In exchange for this potentially lower risk, the value of the security may not rise as much as companies with smaller market capitalizations.

Investments in small-sized companies may involve greater risks than in those of larger, better known companies.

Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.

Asset Allocation is a method of diversification which positions assets among major investment categories. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise bond values and yields usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities.

Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

There are risks associated with investing in Real Assets and the Real Assets sector, including real estate, precious metals and natural resources. Investments can be significantly affected by events relating to these industries.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations. Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

Generally, among asset classes, stocks are more volatile than bonds or short-term instruments. Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns. U.S. Treasury Bills maintain a stable value if held to maturity, but returns are generally only slightly above the inflation rate.

More Mind on the Markets

View All Insights