REITs Trail Broader Market Despite Record-Setting Quarter

Despite strong equity performance overall, investors remain cautious about REITs in a high-rate environment complicated by inflation concerns and tariff-related uncertainty.

“Generalists have essentially said that with where rates are, REITs are not that attractive because we can find equally good yields in other debt-like instruments, and we can also find growth in other sectors,” said Haendel St. Juste of Mizuho Securities.

Defensive Sectors Outperform; Cyclical REITs Struggle

So far in 2025, more defensive REIT sectors — including cell towers, healthcare, and net lease properties — have shown relative strength. For example, American Tower Corp. has seen returns surge nearly 23% year-to-date, outperforming the broader market. The Boston-based firm operates a portfolio of 42,000 cell towers.

In contrast, more cyclical segments such as office, retail, and hotel REITs have faced continued headwinds. Office REITs gained 3.4% in Q2, but remain down 7.5% year-to-date. Shares of Hudson Pacific Properties are down 3.7%, while Boston Properties has lost more than 7%.

“It’s been a risk-off environment within REITs, but not necessarily in the market more broadly,” noted Neeraj Malhotra, analyst at BMO Capital Markets.

Specialty REITs Lead in Q2

According to Nareit, specialty REITs — which manage nontraditional assets such as movie theaters, casinos, and farmland — were the best-performing group last quarter, delivering approximately 15% in total returns. In contrast, timberland REITs suffered the largest losses, down 13% over the same period.

Market analysts suggest ongoing rate uncertainty, geopolitical tensions, and mixed signals about job growth are likely to keep the sector under pressure through the second half of 2025.