Are REITs entering a goldilocks phase for global investors?
21 JUL, 2025
By Rick Romano, Head of Global Real Estate Securities at PGIM Real Estate
Real estate securities are rebounding after prior price adjustments, yet new risks tied to US trade policy and uncertainty over Federal Reserve rate cuts are affecting growth. While the US economy remains robust, concerns around tariffs and global growth continue to weigh on REIT performance and slow broader equity gains.
Despite headwinds, property demand remains strong across most sectors. Meanwhile, construction activity has slowed significantly over the past two years due to rising interest rates and costs, now compounded by new tariffs and tighter immigration policies. This supply shortage may extend the current real estate cycle.
Growth drivers for REITs
- Resilient income: Historically, REITs have performed well during trade wars or under tariff regimes. Their defensive nature, focus on domestic demand, and long-term leases provide a natural inflation hedge.
- Strong fundamentals: Limited new development creates a supply-demand imbalance, supporting rental growthand property values.
- Structural growth trends: The housing shortage drives rental increases in residential real estate, such as apartments and senior housing. At the same time, digital transformation trends like e-commerce and AIcontinue to fuel demand for logistics facilities (e.g. industrial real estate, cold storage) and data centres.
- High probability of mean reversion: Historically, REITs have outperformed equities when the 10-year US Treasury yield ranged between 3% and 5.25%. With rates likely to remain in a sideways trend, REITs are well positioned for a potential rebound, especially since they’re trading at historical discounts versus stocks.
- Potential for M&A activity: Attractive valuations and improving fundamentals could spark private equityinterest in REITs. Even delayed, lower interest rates would support acquisitions.
Regional opportunities
- United States: Fundamentals are improving, with earnings growth projected above 6% in both 2025 and 2026. Sectors such as senior housing, multifamily, and cold storage benefit from strong defensive demand and limited supply.
- Europe: Still seen as undervalued, especially after underperformance in 2024 due to slow growth, political risk, and high leverage. However, promising growth sectors include logistics, data centres, multifamily housing, and self-storage.
- Asia: Lower bond yields and slower growth create a favourable environment for REITs. Top opportunities include hospitality in Japan, residential and retail in Australia, industrial and data centres in Singapore, and non-discretionary retail in Hong Kong.
Poised for a Goldilocks environment
After two years of volatility, more stable macroeconomic conditions and a lower cost of capital offer a more optimistic outlook for REITs. Their solid fundamentals, combined with favourable long-term sectoral and regional trends, make this an attractive entry point for patient, long-term investors.
With REIT earnings facing less uncertainty than the broader equity market, and moderate interest rates in sight amid slower economic growth, global REITs appear well positioned to benefit from a true Goldilocks scenario.
