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 unitsBut 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