The keyword for markets in the first half of 2025 was “volatility.” Factors such as ever-shifting tariff rates and implementation dates, a weakening dollar, the interest rate outlook and whether the U.S. economy is headed for a recession have all contributed to the ongoing roller coaster.
Publicly-traded REITs have not been exempt from this, seeing wild swings in share prices at times. Despite all of this, the FTSE Nareit All Equity REITs index has ended up a hair higher from where it was the start of 2025: The index is currently up 1.8% year-to-date.
REIT industry association Nareit has likened it to a roller coaster ride in its midyear outlook. After many ups and downs, the sector got off the ride where it started.
The question for the second half—depending on the same factors that drove first-half volatility—is whether REITs will get back on the ride for another go or be able to take advantage of market conditions and solid balance sheets to outperform.
WealthManagement.com caught up with John Worth, Nareit executive vice president for research and investor outreach, to discuss the outlook.
This interview has been edited for style and length.
WealthManagement.com: Can you summarize the first half of the year and where things stand for the rest of 2025?
John Worth: In some ways, it is a moving target. At midyear, we were at a place where we felt the measures of volatility that we saw earlier in the year, post-Liberation Day, had come down dramatically. We were on this roller coaster ride, but it felt like we had gotten off at the same place we had gotten on.
Capital markets remain open to REITs. Balance sheets are well constructed, and REITs have growth opportunities, as we saw commercial real estate transactions tick up. We had gone for a wild ride, but REITs ended up unscathed.
But right about the time we published our outlook, we started having more trade-related volatility again. That’s going to be the case for the month of July and into August as we get to a resolution on tariff rates and trade deals.
Some things have heartened us. The recent market volatility has been nowhere near what it was in April. And we know REITs have now been stress tested and have come through unscathed and are able to access capital even as spreads widened out. REITs can be resilient and when it calms down, REITs still have opportunities.
We hit the midyear after all this volatility with REITs up 1.8%. That’s not as strong as earlier in the year, but it’s positive performance and some subsectors like telecom, gaming and healthcare are having strong years. It feels like a good position.
WM: Now there’s also talk about replacing Jerome Powell. Is interest rate policy and whether the chair is replaced something that could affect the second half outlook?
JW: For REITs, what really matters are long-term rates. They are more linked in financing to the 10-year Treasury than to the short end of the curve. The Fed’s ability to have an impact on the long end is quite muted. It’s set by market forces.
There might be some short-term pros or cons to a different monetary policy, and certainly REITs have paid a price for the change in interest rates in the last couple of years, but in terms of a broader rate environment, we’ve seen over time that REITs can do well in periods of high rates, low rates or moderate rates.
WM: That’s right. I think it’s something we talked about earlier this year when Nareit published studies about REIT performance historically in different rate environments.
JW: We’ve seen good performance across the board in terms of interest rate regimes over time, and in fact, some of the best performances for REITs have been in high-rate environments. That’s not because high rates are necessarily good for REITs. It just means that in a strong economy and good market conditions, REITs can perform well even if rates are high by historical standards.
WM: Another theme we’ve talked about a lot is REIT balance sheets. And it is notable to me that discipline has remained in place. A lot of the metrics have remained stable and the approach hasn’t changed. We don’t see REITs, for example, needing to take on added leverage.
JW: In our outlook we looked at balance sheet characteristics from Q4 2021, before rates started to rise, and look at where they are in Q1 of 2025 with 10-year Treasury rates 225 to 250 basis points higher.
What you see is that REITs have been resilient. Leverage ratios are still very modest, at 33% compared with 27% in 2021. The percentage of fixed-rate debt has increased (from 88% to 91%). The unsecured debt share increased (from 77% to 79%). The term to maturity has fallen a little (from 7.2 years to 6.2 years) as REITs have held onto the debt they’ve had and as refinancings have been in the five-year rather than 10-year range. And the cost of debt has risen about 80 basis points, but that’s lower than the rise in the 10-year.
What’s interesting is that it’s the dog that didn’t bark. It’s what didn’t change that’s interesting. REIT management teams are sticking to their strategies and not swinging for the fences with high leverage.
WM: Are there any other themes that stand out at midyear?
JW: The global perspective is a reversal of what we’ve seen for the last 10 years. Typically, U.S. REITs have outperformed by a huge margin. The 10-year average total return for North American REITs is around 4.9% vs. Asia and Europe being below 1%.
This year, it’s a total reversal where, in dollars, Europe is leading the regions with almost a 25% return over the first six months and Asia is at 15% and the North American return is slightly less than 1%.
Some of that is a function of the devaluation of the dollar vs. the Euro, the yen and the pound. That accounts for some of the delta, but even in other currencies you are seeing the same ordering of performance.
WM: That’s a theme I’ve been hearing more broadly about equities. That after years of international equity underperformance that 2025 has been a rebound. So, you are getting the benefits of hedging and diversification that have not been there as much in recent years.
JW: Sometimes we get questions based on the prior decade of, “Is it worth it?” “Am I getting anything?” This year is showing why you want some global exposure in real estate.
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