A sample has emerged prior to now 12 months or so during which publicly traded REIT whole returns have moved in an inverse course to the 10-year Treasury yield. When yields have been rising, REITs have gone down and vice versa.
To this point in 2025, 10-year Treasury yields are off latest peaks. And REIT whole returns have been up year-to-date, even amid among the broader inventory market volatility. By way of the top of February, REIT whole returns had been up about 5% for the 12 months.
However whereas this inverse relationship has held agency for a interval, it isn’t all the time the case. In actual fact, there are intervals when REIT whole returns and Treasury yields transfer in the identical course. To try to higher perceive the dynamic between REITs and rates of interest, Nareit launched a collection of analysis items prior to now months, analyzing completely different variables.
WealthManagement.com spoke with Edward F. Pierzak, Nareit’s senior vice chairman of analysis, about REIT returns up to now in 2025 and the latest analysis items.
This interview has been edited for fashion, size and readability
WealthManagement.com: Begin with February’s efficiency and year-to-date efficiency. How are REITs faring amid among the latest volatility?
Ed Pierzak: The FTSE Nareit All Fairness REITs index had robust returns in February, up 4.2% and on the 12 months, is now up 5.3%, in contrast with the S&P 500, which is up year-to-date 1.4% in the identical interval. So it’s robust efficiency relative to the broader market.
We’ve talked in regards to the inverse relationship with the 10-year Treasury yield for a while. REITs had weaker efficiency on the finish of 2024, and plenty of that stemmed from the rise in December and into January of the 10-year Treasury, which rose about 65 foundation factors.
Right now, the yield is again all the way down to the place it was initially of December 2024. As we noticed that drop, we’ve seen stronger REIT efficiency.
WM: Does something stand out on the optimistic and damaging aspect amongst particular property sorts?
EP: One which stands out is knowledge facilities. Efficiency in February and year-to-date are each damaging with whole returns down virtually 7% year-to-date. That, at the very least partially, stems from the announcement of the DeepSeek AI and, with that, issues about whether or not it’ll affect demand for knowledge middle house.
Analyst Inexperienced Avenue instantly had a webinar, and so they began with the idea that the tech is viable, scalable and going to ship on every part it guarantees after which tried to determine, “What does this imply for demand for knowledge facilities?” Their take was that in the event you thought earlier than that demand was the equal of wanting an extra-large pizza, if all of the DeepSeek claims come to fruition, the demand for knowledge facilities as an alternative would grow to be a big pizza.
So, even when every part holds true, we are going to nonetheless see robust demand for knowledge facilities. It’s going to solely be altering on the margins. General, that’s excellent news for the sector.
On the optimistic aspect, industrial REIT whole returns are up virtually 15% year-to-date. Industrial had an extended interval of prosperity, then an imbalance in provide and demand. Now, it’s recalibrated, and it’s seeing robust efficiency once more.
WM: There’s additionally the dynamic of whether or not declining yields are signaling elevated probabilities of a recession. Is {that a} concern proper now?
EP: At this level, we don’t assume the chance of a recession is coming into play. We take a look at a few metrics. Bloomberg’s February ballot of economists put the probabilities of a recession this 12 months at 25%. The New York Fed additionally does some estimates, and it’s roughly in the identical ballpark. It doesn’t seem to be there are issues of a recession, however there are positively intervals of uncertainty.
WM: So, one of many dynamics we’ve talked about just a few instances now could be the inverse relationship between Treasury yields and REITs in latest instances. However you even have finished some analysis that this isn’t a everlasting dynamic. You additionally seemed on the relationship between REIT efficiency and rates of interest in another methods. Are you able to discuss why you’re doing this and what you might have discovered?
EP: Once we’ve talked about this inverse relationship, we get plenty of reactions from buyers. They’re fearful about excessive and better rates of interest and what which means for actual property. That fear, in some methods, will be warranted, but it surely’s a kneejerk response. They’re pondering, “If charges go up, cap charges go up, and so all else equal, actual property values go down.”
We now have come out with a three–half collection.
The primary one we mentioned final month seemed at efficiency total in intervals of low, mid and excessive rates of interest. The excellent news is that irrespective rate of interest ranges, actual property, on common, posted optimistic returns throughout the board. Extra essential for REITs, they outperformed personal actual property in all of these rate of interest environments.
The following piece we printed checked out adjustments in yields. We checked out quarterly knowledge and calculated on a rolling four-quarter foundation the adjustments in Treasury yields and likewise added within the context of whether or not the economic system was experiencing low, mid or excessive GDP development. We put an financial backdrop on it.
In intervals with rising rates of interest, 78% of the time, REITs have posted optimistic whole returns. In declining fee environments, we get related outcomes: 78.1% of the time, REITs have optimistic returns. From that, we see that whether or not charges are rising or falling, REITs can do properly.
One key takeaway we acquired is that in intervals of low GDP development and declining rates of interest—quarters with actual GDP development of lower than 1% or damaging—that’s not recipe for REIT efficiency.
The place we stand right now is that the economic system is in fairly good condition. Jobs numbers and inflation all look comparatively good. We’re not fearful about that sort of atmosphere.
WM: What does the third piece of analysis discover?
EP: The very last thing we did was study the connection between yields and REIT returns, figuring out when it’s inverse and when it’s optimistic.
We went again to 2000 and checked out 180-day rolling correlations between yield adjustments and REIT returns. We discovered it’s about 50/50.
Then we added a little bit of context. We plotted the 10-year Treasury much less the three-year. When that unfold is getting bigger—steepening or at a excessive degree—we have a tendency to watch a optimistic relationship between the 10-year and REIT whole returns. When it’s lowering, at a low degree or inverted, we are inclined to see a damaging correlation.
An inverted yield curve is usually considered as a sign of a coming recession. The NY Fed has finished plenty of work on this. They’ve their method of calculating the curve and the prospect of a recession within the subsequent 12 months. Typically, as the chances of a recession enhance, these are typically the damaging correlation intervals.
The message comes out the identical. If the outlook on the economic system tends to be optimistic, then now we have a optimistic relationship. If the outlook is pessimistic, we are inclined to have a damaging relationship.
One factor to notice is that the yield curve is not damaging and has improved over the previous a number of months. Though historical past isn’t any indicator of future outcomes, which means we very properly may even see a reversal within the relationship between REITs and the 10-year yield.