REITs on the Radar: Why Value Investors Are Eyeing Real Estate Stocks Again
After years of lagging performance, Real Estate Investment Trusts (REITs) are attracting renewed attention—especially from value-driven investors.
Although REITs haven’t delivered impressive returns lately due to high interest rates and industry disruptions (think remote work, e-commerce, and home-sharing), there’s growing sentiment that this out-of-favor asset class may now be deeply undervalued.
A Sector Left Behind… Until Now?
REITs have underperformed other equity sectors over the past five years, but value investors know that deep market pessimism often signals opportunity.
• The Morningstar US REIT Index has been flat in 2025, underperforming in bullish periods but holding steady in downturns.
• Globally, the Morningstar Global Markets ex-US REIT Index has shown signs of recovery—amplified by a weakening U.S. dollar.
Dividend Yields That Stand Out
REITs still offer superior yields compared to many stocks:
Index Dividend Yield (May 2025)
Morningstar US REIT Index 3.8%
Morningstar US Market Index 1.3%
Morningstar Global ex-US REIT Index 5.3%
US Core Bond Index 4.7%
But here’s the caveat: rising bond yields are drawing income-focused investors away from REITs, contributing to recent outflows from REIT funds.
️ Risks and Realities: What’s Hurting REITs?
According to Morningstar analyst Kevin Brown, REITs have suffered because:
1. Competition from bonds: Safer assets now offer similar or better yields.
2. Higher interest costs: Borrowing is expensive, limiting expansion and acquisitions.
3. Structural changes: Office and retail REITs are battling demand drops due to hybrid work and online retail.
REITs vs. Direct Property Investment
Why consider REITs over buying physical property?
✅ Diversified exposure across property types (residential, retail, healthcare, industrial)
✅ Liquidity—buy and sell like stocks
✅ No tenant or maintenance hassles
✅ Potential tax advantages
✅ Lower “idiosyncratic risk” than owning one or two rental units
But Are They Diversifiers? Not Always.
While REITs are often marketed as diversifiers, recent data says otherwise:
• The correlation between REITs and the US stock market has risen to 0.83 over five years, reducing their diversification benefits.
• Compare that to the energy sector, which had a correlation of 0.42—a much better diversifier.
️ Inflation Hedge? Somewhat.
REITs can help hedge inflation because rents tend to rise, but:
• Rising inflation also increases operating and construction costs.
• There’s often a lag before rent increases offset higher expenses.
REITs Beyond Malls and Offices: New Frontiers
If you’re worried about outdated commercial property models, there’s good news: some REITs are thriving in tech and healthcare trends, such as:
• American Tower (AMT) – owns cell towers
• Digital Realty (DLR) – operates data centers powering AI
• Healthpeak (DOC) – benefits from aging populations
These REITs may offer growth unrelated to traditional real estate headwinds.
The Opportunity: Undervalued & Oversold
Morningstar believes the sector has become too cheap:
“Many REITs are trading at historical lows,” says Kevin Brown.
“The market may be overreacting. There’s value to be found.”
Final Thoughts: Worth a Second Look?
While REITs may not offer the same diversification or inflation protection they once did, their valuation levels could present a golden opportunity—especially for long-term, income-seeking, or contrarian investors.
For REIT Exposure, Investors Can Consider:
• Individual Picks: Undervalued REITs like Americold Realty Trust (COLD)
• Top-Rated ETFs: Active and passive REIT-focused funds with global or U.S.-only exposure
After years of lagging performance, Real Estate Investment Trusts (REITs) are attracting renewed attention—especially from value-driven investors.
Although REITs haven’t delivered impressive returns lately due to high interest rates and industry disruptions (think remote work, e-commerce, and home-sharing), there’s growing sentiment that this out-of-favor asset class may now be deeply undervalued.
A Sector Left Behind… Until Now?
REITs have underperformed other equity sectors over the past five years, but value investors know that deep market pessimism often signals opportunity.
• The Morningstar US REIT Index has been flat in 2025, underperforming in bullish periods but holding steady in downturns.
• Globally, the Morningstar Global Markets ex-US REIT Index has shown signs of recovery—amplified by a weakening U.S. dollar.
Dividend Yields That Stand Out
REITs still offer superior yields compared to many stocks:
Index Dividend Yield (May 2025)
Morningstar US REIT Index 3.8%
Morningstar US Market Index 1.3%
Morningstar Global ex-US REIT Index 5.3%
US Core Bond Index 4.7%
But here’s the caveat: rising bond yields are drawing income-focused investors away from REITs, contributing to recent outflows from REIT funds.
️ Risks and Realities: What’s Hurting REITs?
According to Morningstar analyst Kevin Brown, REITs have suffered because:
1. Competition from bonds: Safer assets now offer similar or better yields.
2. Higher interest costs: Borrowing is expensive, limiting expansion and acquisitions.
3. Structural changes: Office and retail REITs are battling demand drops due to hybrid work and online retail.
REITs vs. Direct Property Investment
Why consider REITs over buying physical property?
✅ Diversified exposure across property types (residential, retail, healthcare, industrial)
✅ Liquidity—buy and sell like stocks
✅ No tenant or maintenance hassles
✅ Potential tax advantages
✅ Lower “idiosyncratic risk” than owning one or two rental units
But Are They Diversifiers? Not Always.
While REITs are often marketed as diversifiers, recent data says otherwise:
• The correlation between REITs and the US stock market has risen to 0.83 over five years, reducing their diversification benefits.
• Compare that to the energy sector, which had a correlation of 0.42—a much better diversifier.
️ Inflation Hedge? Somewhat.
REITs can help hedge inflation because rents tend to rise, but:
• Rising inflation also increases operating and construction costs.
• There’s often a lag before rent increases offset higher expenses.
REITs Beyond Malls and Offices: New Frontiers
If you’re worried about outdated commercial property models, there’s good news: some REITs are thriving in tech and healthcare trends, such as:
• American Tower (AMT) – owns cell towers
• Digital Realty (DLR) – operates data centers powering AI
• Healthpeak (DOC) – benefits from aging populations
These REITs may offer growth unrelated to traditional real estate headwinds.
The Opportunity: Undervalued & Oversold
Morningstar believes the sector has become too cheap:
“Many REITs are trading at historical lows,” says Kevin Brown.
“The market may be overreacting. There’s value to be found.”
Final Thoughts: Worth a Second Look?
While REITs may not offer the same diversification or inflation protection they once did, their valuation levels could present a golden opportunity—especially for long-term, income-seeking, or contrarian investors.
For REIT Exposure, Investors Can Consider:
• Individual Picks: Undervalued REITs like Americold Realty Trust (COLD)
• Top-Rated ETFs: Active and passive REIT-focused funds with global or U.S.-only exposure