The absolute performance of listed REITs, their relative performance to the broader market and the drivers of the positive returns.
KEY TAKEAWAYS:
- REITs have returned more than 5% through the end of February, their eighth best start to the year since 1995.
- For the first time in five years, listed REITs are outperforming the S&P 500 through the first two months of the year, and are the fourth best sector overall.
- While falling real rates have helped REITs, historical analysis shows a history of positive performance during “Fed hold” periods.
Welcome to the Real Estate Reel from Cohen & Steers.
1. Listed REITs returned more than 5% YTD
This month we are diving into the performance of listed REITs over the first two months of 2025.
First, Listed REITs have returned more than 5% year-to-date, as of the end of February.
While this may seem relatively muted at first glance, it’s the eighth best start to a year since 1995 as shown in this chart.
EXHIBIT 1
REITs have their eighth best start to a year since 1995
FTSE NAREIT Equity REIT Returns Through February since 1995
At February 28th, 2025. Source: Bloomberg and Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results
It hasn’t been smooth sailing though. The sector was down nearly 4% over the first 10-days of the year as real rates rose, but REITs have rallied nearly 10% since that time through the end of February.
Thirteen out of eighteen subsectors are positive on the year, led by industrial which has risen 14.7% and healthcare that’s returned 14%.
By comparison, lodging is lagging, down almost 8% followed by data centers that’s declined 6.8%.
2. Listed REITs are outperforming the S&P 500
Second, and maybe more impressively, listed REITs are outperforming the S&P 500 by 345 basis points year-to-date and the NASDAQ by 681 basis points.
This is the first time in five years where listed REITs have outperformed the S&P over the first two months of the year and it’s the greatest relative performance since 2014. As shown in this chart, out of the eleven S&P 500 sectors, Real estate is the 4th best performer year-to-date as of the end of February.
EXHIBIT 2
Real estate is the fourth best performing sector in the S&P 500
Year-to-date through February
At Feburary 28th, 2025. Source: Bloomberg and Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results
This marks a stark reversal from what’s occurred since the end of 2021 where real estate is the worst performing sector of the S&P 500 and the only sector that is down over that period with a total return of -7%.
By comparison, the S&P 500 is up over 31% since the end of 2021 with energy up nearly 83% and technology more than 48% higher.
It’s worth noting that many of last year’s darlings including technology and consumer discretionary are lagging since the start of the year.
3. What’s driving the rally in listed REITs?
This brings me to my final point, what’s driving the rally in listed REITs?
The easy answer is that real rates have declined almost 33 basis points since the end of last year and are almost 41 basis points lower since January 10th.
However, we think there are two additional explanations.
First, the market has become more focused on growth than inflation. This is driving interest rates lower and increasing demand for defensive sectors like real estate, staples, healthcare, and utilities.
Indeed, we’ve long argued that one of the benefits of REITs, which is their dividend yield, is nearly 4% today, and stable earnings growth – which we expect to be in the mid-to-high single digits.
Second, since last cutting rates in September of 2024, the Fed has remained on hold.
This is important because an analysis of historical periods where the Fed holds after cutting interest rates shows listed REITs produce strong returns as shown in this chart.
EXHIBIT 3
On average, REITs do well when the Fed is on hold
FTSE NAREIT Equity REIT Performance During Fed Holds
At Feburary 28th, 2025. Source: Bloomberg and Cohen & Steers. Data quoted represents past performance, which is no guarantee of future results
Consider that the next twelve-month (NTM) returns following a Fed hold have averaged +19%, ranging from -7% to +39%.
There is only one period (November 1998 – May 1999) that generated negative next twelve month returns of -7%. However, during the 7-month period when the Fed held interest rates, listed REITs still produced positive returns of +5.3%. It wasn’t until the Fed started raising interest rates in June 1999 that returns turned negative.
Watch February 2025 The Real Estate Reel: Exploring the lead-lag relationship of listed and private real estate.
Watch all The Real Estate Reel videos.
FURTHER READING
Capital Market Assumptions
Expected returns for the next 10 years amid elevated inflation and resilient global growth
Exploring the lead-lag relationship of listed and private real estate
Private real estate returns in fourth quarter 2024, the lead-lad relationship with listed REITs and the shifting performance of private market property types. This month, we are digging into the performance of the NCREIF ODCE index. Many institutional investors are benchmarked to this private CRE index, which makes it an important market barometer.
Why active management matters for listed real estate
Active managers of listed real estate funds have historically outperformed passive. We believe this is due to the inefficiency, diversity and complexity of listed real estate markets.
Data quoted represents past performance, which is no guarantee of future results. The information presented does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected. There is no guarantee that any market forecast set forth in this video will be realized. There is no guarantee that any historical trend referenced herein will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The mention of specific securities is not a recommendation or solicitation to buy, sell or hold any particular security and should not be relied upon as investment advice.
This video is for informational purposes and reflects prevailing conditions and our judgment as of March 2025, which are subject to change. This material should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or take into account the specific objectives or circumstances of any investor. We consider the information in this video to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing.
Risks of Investing in Real Estate Securities. Risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies or declining rents resulting from economic, legal, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and less liquidity than larger companies. No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved.
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