Real estate investment trusts, or REITs for short, have largely recovered in 2026 so far. After a long period of underperformance, these investment vehicles for listed real estate are now outperforming the S&P 500. By the end of June, their cumulative year-to-date returns were more than 5 percentage points above the index. Despite this recent rebound, many REIT executives believe the market has not yet fully recognised their true value.
Matt DiLiberto, Chief Financial Officer of New York office giant SL Green, is among this group. SL Green is experiencing a record year, buoyed by record-high rents and low vacancy rates in the company's prime New York City office properties. Nevertheless, the company estimates that its share price is below the aggregate value of its buildings – though SL Green's calculations and those of analysts differ on the exact magnitude of this discrepancy. DiLiberto emphasised that it stems from the fundamental difference in investment horizons between public and private investors. He described public investor activity more as “trading” than “investing”.
A growing number of REIT shareholders are focusing on income and short-term returns. In 2025, this was compounded by the distraction of the artificial intelligence boom. DiLiberto noted that discrepancies inevitably arise when trying to sell an investment vehicle with a 10-to-15-year horizon to someone looking for returns in three to six months. Regardless of whether interest rate fluctuations or fundamental property factors are the cause of this discrepancy, the industry and investors agree: the valuation of REITs is becoming increasingly complex.
A REIT offers investors the opportunity to passively invest in real estate via the stock market, rather than directly in physical assets. Two values are presented simultaneously: the share price on the one hand, and the valuation of the REIT's real assets – be it office towers like those of Vornado or distribution centres like those of Prologis – which is primarily based on appraisals, on the other. The difference between these two prices is referred to as a discount or premium to Net Asset Value (NAV) and is the source of ongoing frustration within the REIT industry.
For years, the robust balance sheets of public REITs contrasted with their sluggish share prices, while private real estate values outperformed their listed counterparts for one of the longest periods in decades, according to the industry organisation National Association of Real Estate Investment Trusts (Nareit). This year, however, is seeing a turnaround. The old industry adage “interest rates up, REITs down” no longer applies without restriction. The fever that caused REIT valuations to plummet in 2022 due to interest rate hikes has subsided, albeit unevenly. The outperformance of REITs in 2026 is partly due to sector diversification.
Peter Zabierek, Senior Portfolio Manager at Easterly Investment Partners, observes how today's REIT market differs from “your father's REIT market,” which primarily consisted of retail, industrial, office, and multi-family properties. Today, office buildings account for only about 3 per cent of the REIT market index. New sectors such as data centre REITs, self-storage REITs, and senior housing REITs are the driving forces. Zabierek noted that two-thirds of the market capitalisation of REITs lies outside the four traditional sectors.
According to David Auerbach, Chief Investment Officer at Hoya Capital, a significant number of REITs have risen by more than 20 per cent year-on-year. This group includes emerging and value-oriented comeback sectors such as data centres, regional shopping centres, medical offices, self-storage, and senior housing. Data centre REITs are having a particularly good year, up 27 per cent, accompanied by a pleasing recovery in the hotel and lodging sector of almost 40 per cent, according to Auerbach's calculations. Senior housing has the best growth story, with Welltower leading in high premiums to net asset value. Industrial and office also show slight gains, while residential real estate remains a weak spot. The multi-family segment has recovered but is still underperforming.
The sector-specific upturns identified by analysts occurred despite persistently high interest rates. Between January and May, there were ten mergers and acquisitions in the REIT world, including the $35 billion merger of AvalonBay with Equity Residential and the upcoming $10.5 billion all-cash merger of NSA Storage with Public Storage. Scott Robinson, Professor and Director of the REIT Center at the Schack Institute of Real Estate at New York University, explained that most public-to-public deals in recent years have been all-stock transactions, exploiting current discounts. Robinson added: “When M&A deals are done with pure share payment in a market regime, it signals to investors that the market is largely undervalued.”
