Real Estate Investment Trusts (REITs) demonstrated strong performance in the second quarter of 2026, led by impressive results in the hotel, industrial, and office sectors. However, the industry as a whole remains affected by high interest rates and a lack of investor confidence. These insights come from a new report by Hoya Capital, a private investment advisory and research firm specialising in the REIT market.
Hoya Capital aggregated data from over 200 US REITs and homebuilders that reported their second-quarter results in recent weeks. It found that 83 per cent of publicly traded REITs raised their full-year Funds From Operation (FFO) guidance – an indicator of cash flow – while only 4 per cent lowered their outlook. Hoya Capital noted that the results were “surprisingly strong” and “delivered one of the cleanest reporting periods in recent memory, with unusually broad guidance hikes, improving property-level fundamentals and relatively few genuine disappointments.”
In the second quarter of 2026, national office leasing rose by 16 per cent year-on-year to 62.4 million square feet, boosted by strong results from office giants such as SL Green Realty and BXP. Concurrently, retail occupancy rates almost returned to pre-pandemic levels, and the industrial sector benefited from the data centre development boom. David Auerbach, Chief Investment Officer at Hoya Capital, explained that higher interest rates have been noticeable for some time, and REITs are finding ways to operate in this volatile environment, whether through raising billions in capital or through mergers, acquisitions, and portfolio sales.
Despite this positive news, high interest rates are beginning to dampen overall investor sentiment towards REITs, particularly over the last month. Hoya Capital noted that the Equity REIT Index, a comprehensive measure of publicly traded REITs, fell by 0.7 per cent from 12 July to 11 August, while the S&P 500 gained almost 4 per cent. Overall, the Equity REIT Index rose by 11.6 per cent year-to-date (and by 7.5 per cent compared to 2025), while the S&P 500 gained 13.6 per cent year-to-date (but by 2.6 per cent compared to 2025).
According to Auerbach, the year began with positive investor sentiment for REITs: the FTSE NAREIT U.S. Equity Index recorded positive returns of 3.8 per cent at the end of the first quarter, while the Dow Jones Industrial Average fell by 3.6 per cent and the S&P 500 by 4.6 per cent. However, investors are no longer buying into the sector. Auerbach remarked that there was “a ‘everyone out of real estate’ for no reason, and we got sold off”. He emphasised that the rise in the 10-year Treasury yield, which stood at 4.7 per cent in August – its highest level in 18 months – and the 30-year Treasury yield, which reached over 5.2 per cent – its highest in almost 20 years – is weighing on sentiment. “Investor sentiment is depressed because of interest rate concerns and the rising rate environment of the 10-year and 30-year Treasuries,” Auerbach explained. “This is interest-rate driven, not fundamentally driven. There’s no other explanation.”
The hotel sector was the big winner in the second quarter of 2026. Hoya Capital found that 10 hotel REITs reported an increase in their full-year FFO forecasts, raising the average expected FFO growth for 2026 from an initial 6.7 per cent to 10.6 per cent. Demand from urban, resort, and business travellers underpinned much of the positive cash flow. Overall, hotel REITs rose by 34.3 per cent in 2026 and are the second-best performing REIT asset class after data centres. Auerbach commented that hotels had been under pressure since COVID and were now showing signs of recovery, with increasing convention business and improvements across various segments, from luxury to select-service, with World Cup tourism activity providing an additional boost.
Another strong sector in the second quarter was industrial, with industrial REITs reporting 4.4 per cent FFO growth and 3.9 per cent increases in comparable property net operating income expectations, according to Hoya. Industrial giant Prologis saw FFO rise by almost 12 per cent in the second quarter as it financed an acquisition of European competitor Segro, while Rexford planned to sell $2 billion worth of assets after reporting a $507 million loss in the second quarter. Rexford followed through, recently selling an industrial portfolio for $1.2 billion to EQT Real Estate. Auerbach predicts that the industrial sector will likely benefit from data centre performance in the coming quarters as the development boom continues. Link Logistics recently reported that each gigawatt of data centre construction creates 2 million square feet of industrial real estate demand, due to the close relationship between the functions of these two asset classes, particularly in the last-mile industrial sector. Auerbach emphasised: “This is a sector that is not losing momentum right now. A lot is happening there.”
Surprisingly, Hoya Capital also categorised office REITs as winners in the second quarter. Cushman & Wakefield reported that national…
