While equity markets have surged over the past year, Real Estate Investment Trusts (REITs) have been left behind. The MSCI US REIT Index is up just 5.4% year-to-date, compared with a 16.1% gain for the S&P 500.

On the surface, that gap makes REITs look uninteresting. But history suggests that periods of underperformance often precede some of the strongest relative returns.

With interest rates nearing a turning point, equity valuations stretched, and income assets back in demand, REITs may be approaching a more favourable part of the cycle .

We walk through that later in this article. But first…

What Happened in Markets this Week?

💄 L’Oréal snaps up Kering’s luxury beauty portfolio in €4B power play ( Yahoo Finance )

L’Oréal will acquire Kering’s entire premium beauty business for €4B, including 50-year licences for Gucci, Bottega Veneta and Balenciaga beauty lines, plus the Creed fragrance house.
The deal strengthens L’Oréal’s lead in luxury beauty while helping Kering cut debt and refocus on struggling core brands like Gucci.
It also reshapes the competitive landscape: Kering exits beauty just as conglomerates like LVMH double down on high-end cosmetics, raising questions about long-term brand control.
A new L’Oréal–Kering wellness joint venture signals the next frontier of luxury diversification.
Investors should view this as further consolidation in a sector where scale increasingly drives pricing power and global reach.

🎬 Netflix emerges as top bidder for Warner Bros Discovery ( Reuters )

Netflix has offered the highest bid and entered exclusive talks to buy Warner Bros Discovery , backed by a $5B breakup fee if regulators block the deal.
A deal would merge Netflix with HBO Max and Warner’s studio assets – a potential industry reshaping combination.
Rivals, including Paramount and Comcast, are protesting an allegedly biased sale process.
Hollywood producers have begun lobbying Congress, warning the merger could concentrate too much power.
Investors should brace for major consolidation signals across streaming if this moves forward.

🤖 Salesforce lifts forecasts as AI agent demand surges ( Reuters )

Salesforce raised revenue and profit guidance after Agentforce ARR hit $1.4B, up 114% year over year.
Enterprise adoption of autonomous AI agents is accelerating, boosting confidence in Salesforce’s long-term AI monetisation plans.
Agentforce ARR has more than quadrupled, easing fears over slow AI returns.
FY26 guidance now tops $41.5bn in revenue, with higher EPS expectations.
Investors should note how quickly AI agents are becoming a core driver of SaaS growth.

🪙 Bitcoin treasury stocks face their first real stress test ( FT )

Strategy’s market cap has fallen below the value of its BTC holdings, with mNAV collapsing from 4x a year ago to 0.99x, touching 0.95x last week. Based on enterprise value, it’s a little higher at 1.15x.
The company has raised $1.4B through new share sales, but won’t use the cash to buy more Bitcoin – it’s holding it as a buffer to meet dividends despite weak cash flow.
The big risk is a “doom loop”: being forced to sell BTC to fund dividends, pushing down the price of the only asset supporting the business. Management says selling would be a last resort.
Whether the loop triggers depends on three things: how far BTC falls, how long the downturn lasts, and whether Strategy can keep raising fresh capital.
Peers like MetaPlanet face similar pressures but have continued raising capital… for now.
For a deeper look at the risks facing BTC treasury companies, revisit our August breakdown.

Should REITs be in your portfolio next year?

Now let’s go back to today’s big story.

As mentioned, the current economic environment is showing signals of becoming a turning point for the recent underperformance of REITs.

We looked into these signs and found three forces that could reshape REIT performance next year and beyond.

1. REITs have outperformed stocks in rate-cutting environments

Over the past 50 years, US REITs have consistently outperformed US equities following Fed rate cuts, delivering a 9.48% annualized return in the 12 months after the first cut in an expansion cycle, compared to 7.57% for US stocks over the same period.

Rate cuts are a powerful catalyst for REITs because they reduce borrowing costs. As a result, REITs can more easily refinance debt and complete acquisitions.

Sources: Invesco and Bloomberg L.P., since earliest common inception. Monthly return data analyzed between Jan. 1, 1976–July 31, 2025.

Historical patterns also show that the strength of post–rate cut returns has varied with economic conditions. Across the past 14 easing cycles, REITs delivered their best outcomes when the economy was already in a recession , returning 28.98% in the following 12 months. Even across all cycles, the average return was 10.75%, reinforcing that lower borrowing costs have supported real estate performance over time.

Zooming into sector-specific REITs – Invesco notes that data center, telecommunications, and health care REITs, in particular, have historically benefited the most as lower borrowing costs support infrastructure expansion.

This relationship is especially relevant today given the scale of investment being directed toward AI-related infrastructure. Global AI data-center spending is projected to be already at $3 trillion , with Nvidia CEO Jensen Huang estimating this to grow to up to $4 trillion by the end of the decade. Anthropic, the creator of Claude AI, for example, recently announced $50 billion on data-center infrastructure in New York and Texas.

Given all this, investors are well-positioned to take advantage of this relationship, as markets overwhelmingly expect the Fed to cut rates at its next meeting this month. The CME Group's FedWatch tool shows an 87% likelihood of another 25 bps cut .

Moreover, many expect the Federal Reserve Chairman’s successor – likely Kevin Hassett – to take a dovish stance and continue to cut rates when he takes over in May of 2026.

2. REITs have outperformed stocks across multiple time periods

While short-term factors like rate cuts can be supportive of REITs, the long-term picture also signals confidence. REITs have generated an annualized return above the S&P 500 across the past 20, 25, 30, 40 and 52 years,

This long-standing trend might explain why “In the past, we’ve seen S&P 500 earnings come down more and faster than REIT earnings," according to Anthony Paolone, an executive at J.P. Morgan.

This trend matters in a setting characterized by uncertainty about the fragility of the equities market. Paolone continues, “If a meaningful economic slowdown unfolds, REIT earnings growth should prove more resilient than a lot of other areas of the market.”

Today, the burden of S&P 500 earnings falls to a small collection of tech companies. While those earnings have been impressive to date, many are wondering whether AI can prove practical enough to drive further earnings growth amid rising expectations. Consider that US Big Tech accounts for 49% of the S&P 500’s 16.1% YTD return .

In fact, the tech-driven bull market in equities has led to a divergence in earnings valuations between equity REITs and the S&P 500. This gap matters because "REITs have tended to outperform broad equities as the gap between the valuation multiple metrics closes," according to research from the National Association of Real Estate Investment Trusts (NAREIT). History suggests that this gap may close sooner or later.

3. REITs also offer strong diversification and help manage volatility

The IRS requires REITs to distribute at least 90% of their taxable net income to investors. This means that half of the total returns from listed REITs have come from dividends. In comparison, only about one-fourth of the S&P 500's total returns come from dividends.

This income component contributes to diversification, but so does their volatility profile.

Long-term data from 1973 to 2024 shows that dividend-paying stocks recorded a beta ( a measure of volatility ) of 0.94, while non-dividend payers posted a beta of 1.17.

A beta value below 1.0 indicates the asset is less volatile than the market, while a beta value above 1.0 indicates the asset is more volatile than the market.

In practical terms, this means that dividend payers (and yes, REITs) have tended to be less volatile than the broader market, whereas non-payers have been about 17% more volatile on average over the past five decades.

Additionally, research has also shown that REITs have “tended to hold up better than the broad equity market during the recessions of the past 30 years.”

It’s important to note that REIT outperformance is strongest in the early cycle. This finding suggests that investors need some allocation to REITs before a downturn to capture the full benefit of their protection in a diversified portfolio.

⚠️ Understanding the Risks of REITs

Investors need to be aware of some of the unique risks associated with REITs.

Tax Liability

Many countries exempt REITs from corporate income tax, but require a high percentage of their taxable income to be distributed to shareholders. Distribution requirements vary from one country to another. For example:

US : At least 90% of taxable income.
UK : 90% of taxable income (but can exclude capital gains).
Canada : 100% of taxable income

The tax rate on the distributions shareholders receive differs based on the country's laws and the investor's tax residency. This is how it might work for US-domiciled REITs, for example:

US : Individual shareholders generally pay tax at ordinary income tax rates on distributions, but may qualify for deductions that can lower their effective tax rates.
International Investors : Distributions may be subject to US income tax and withholding tax, unless a tax treaty provides a reduced rate or exemption. For example, the US-Chile tax treaty reduces the withholding tax rate on qualified REIT dividends to 15%.

Investors in REITs domiciled across other countries will most likely see different tax treatments for distributions, depending on the country’s laws, so it’s important to conduct due diligence prior to making your investments.

Interest Rates

Though interest rates are forecasted to fall in the coming months, the Fed will someday revert back to a rate-hiking cycle.

In this setting, REITs may be less attractive to other income-generating assets like bonds. Additionally, rising rates mean that borrowing costs grow, making it difficult for the REIT’s fund managers themselves to invest in further real estate to grow their portfolio,

Multiple Sectors within REITs

As mentioned in the previous section, REIT performance can vary depending on the sector its underlying assets operate in.

An investor who chooses a REIT focused on retail real estate, for example, may experience lower returns than other REITs like healthcare REITs during a period of falling consumer sentiment, as people pull back on discretionary spending.

Peter Zabierek, portfolio manager at Sugi Capital Management, believes: “During a recession, sectors like office space and hotels will underperform, but others, like data centers and cell towers, will outperform.”

While only time will tell how these sectors actually perform, for investors, this means further understanding risks and opportunities within the sector a REIT operates in, to ensure it aligns with your overall investment objectives.

✨ The Insight: Now May Be a Good Time to Look at REITs

The combination of rate cuts, a history of long-term outperformance over equities, and resilience during downturns means that REITs could have a place in a balanced portfolio.

As the Fed becomes dovish and concerns about a top-heavy tech sector loom large, investors need a way to add stability to their portfolios.

🏆 Top Five Healthiest US REITS with High Yields

When investors broaden their search to REITs across global markets, they can capture those offering the strongest dividend payments. These REITs have a history of strong dividends.

Alexandria Real Estate (NYSE:ARE)

Dividend Yield : 11.3%

A REIT in the life sciences sector. An owner, operator, and developer of office buildings and laboratories, including Greater Boston, the San Francisco Bay Area, San Diego, Seattle, Maryland, the Research Triangle, and New York City.

Realty Income (NYSE:O)

Dividend Yield : 5.6%

A REIT with a portfolio of over 15,500 free-standing, single-tenant commercial properties in all 50 US states, the UK, and seven other countries in Europe.

Extra Space Storage (NYSE:EXR)

Dividend Yield : 4.9%

A member of the S&P 500 that owns and/or operates 4,238 self-storage stores in 43 states.

Omega Healthcare Investors (NYSE:OHI)

Dividend Yield : 5.8%

A REIT that provides financing to the long-term healthcare industry in the US and UK with a focus on skilled nursing and assisted living facilities.

UDR (NYSE:UDR)

Dividend Yield : 4.7%

A multifamily real estate investment trust that owns or has an ownership position in 60,535 apartment homes, including 300 apartment homes under development.

Gaining Broad Geographic Exposure to REITs

Diversifying risk means considering a diversified set of REITs across geographies. Here are some of the largest REITs in some key geographies.

Indian REITs

Ticker	Name	Market Cap	Distribution Yield
DLF	DLF Limited	₹1.8t	0.8%
LODHA	Lodha Developers	₹1.1t	0.4%
PRESTIGE	Prestige Estates	₹707.3B	0.1%

UK REITs

Ticker	Name	Market Cap	Distribution Yield
SGRO	Segro	UK£9.6B	4.2%
LAND	Land Securities Group	UK£4.5B	6.6%
UTG	Unite Group	UK£2.5B	7.1%

Australian REITs

Ticker	Name	Market Cap	Distribution Yield
GMG	Goodman Group	AU$61.7B	1.0%
SCG	Scentre Group	AU$21.8B	4.2%
SGP	Stockland	AU$14.3B	4.2%

Canadian REITs

Ticker	Name	Market Cap	Distribution Yield
CHP.UN	Choice Properties	CA$10.7B	5.2%
CIGI	Colliers Intl	CA$10.2B	0.2%
FSV	FirstService	CA$9.9B	0.7%

You may use our stock screener feature to look for more across multiple geographies and sectors. Our founder has created a video to walk you through how to use Simply Wall St’s stock screener .

Key Events Next Week

Tuesday

🇦🇺 RBA Interest Rate Decision

📉 Forecast: 3.6%, Previous: 3.6%

➡️ Why it matters: Even a hold is market-moving right now. With Australia’s inflation still sticky, any shift in tone from the RBA could influence bond yields, the AUD, and rate-sensitive sectors like property and tech.

Wednesday

🇺🇸 US JOLTs Job Openings (Oct)

📉 Forecast: 7.0M, Previous: 7.227M

➡️ Why it matters: JOLTs is one of the Fed’s favourite labour indicators. A continued decline signals cooling demand for workers—supporting the case for rate cuts and generally bullish for equities.

🇨🇳 China Inflation Rate YoY

📈 Forecast: 0.5%, Previous: 0.2%

➡️ Why it matters: China has battled deflation all year. A pickup in prices suggests improving demand, which is positive for global commodities, Australian exporters, and overall risk sentiment.

Thursday

🇺🇸 Fed Interest Rate Decision

📉 Forecast: 3.75%, Previous: 4.0%

➡️ Why it matters: This is the BIG one. A potential Fed cut – or even stronger guidance toward cuts – sets the tone for global markets.

🇺🇸 FOMC Economic Projections + Fed Press Conference ➡️ Why it matters: The dot plot and Powell’s language matter more than the rate decision itself. Markets will focus on how quickly the Fed anticipates easing in 2026 and whether growth/inflation forecasts point to a soft landing.

Friday

🇺🇸 US PPI Inflation

📈 Forecast: 0.4% MoM, Previous: 0.3%

➡️ Why it matters: PPI leads CPI. Any surprise here could sway expectations for how aggressive the Fed can be with rate cuts—especially after Wednesday’s JOLTs and Thursday’s FOMC meeting.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Watch: Three Reasons Why REITs Could Rally in 2026 🏘️