Key takeaways:
- REITs are in early recovery mode, and look well positioned to benefit from a broadening out in equity markets. Valuations are at multi-decade lows, despite consistent earnings growth and attractive dividend yields.
- Fundamentals are improving across global property markets, driven by lower interest rates, healthier rental growth, and reduced supply, supporting an ongoing recovery in asset values.
- Investors seeking diversification may want to reconsider REITs, at a time when compelling opportunities exist across regions and property types.
Global listed real estate stocks are off to a positive start in 2026, having delivered a circa 10% return in 2025,1 solidifying an ongoing recovery since late 2023.
Figure 1: Global REITs return on the recovery path since the rate-cycle bottom
Source: Janus Henderson Investors, Bloomberg, as at 31 December 2025. FTSE EPRA Nareit Global Index. Past performance does not predict future returns.
While it was encouraging to see another year of positive returns from the sector, it also marked another year of underperformance versus wider US and global stock markets. The more predictable and defensive characteristics of the real estate investment trust (REIT) sector have, perhaps understandably, been less exciting for generalist stock market investors who are looking to AI, defence and many more cyclical areas to drive returns for their equity portfolios. However, it’s worth remembering that the historical low correlation between global REITs and other asset classes offers diversification benefits to portfolios, something that we believe will become more valuable in a less certain world and one where concerns of investor over exuberance in AI have been percolating.
We believe the equity market is in the early stages of a ‘broadening out’ trade and that REITs stand to benefit from this shift for three key reasons:
1 Strong fundamentals: Multiple factors continue to support REITs
Encouragingly, as active, fundamental investors, we firmly believe that the recovery in underlying direct property markets may very well continue. Lower interest rates and improved lending margins, healthy rental growth across most property sectors, supported by a rapidly reducing level of new property supply, and an ongoing pickup in transaction volumes, should all support the sector’s fundamentals. This leads us to expect in select regions and property types, an acceleration in growth in 2026.
Figure 2: Green Street Commercial Property Price Index
Source: Green Street Advisors, Commercial Property Price Index (CPPI) as at 31 December 2025. Republished with permission. Past performance does not predict future returns.
2 Attractive valuations : REITs have never been this cheap relative to broader equities in 25 years
REITs have seen the largest multiple de-rating within the sectors the equity markets in recent years. As shown in the right-hand chart, US REITs are currently the cheapest they have been in 25 years relative to broader equities. This has occurred despite REITs having delivered consistent earnings growth (which we believe can continue in the years ahead), as well as an increasingly attractive dividend yield.
Figure 3: Real estate has de-rated versus broader equities despite consistent earnings growth
US REITs have grown earnings by 20% since 2022
Source: FactSet, NAREIT T Tracker, BofA US Equity & Quant Strategy, as of December 31, 2025. Forward P/FFO is a REIT valuation ratio that compares the current market price of a REIT and its projected funds from operations (FFO) for the next 12 months giving an indication of whether a REIT is over- or undervalued based on expected future performance. Standard deviation measures the variation or dispersion of a set of values/data in relation to a mean. In terms of valuing investments, standard deviation can provide a gauge of the historical volatility of an investment. Past performance does not predict future returns. Investing involves risk, including the possible loss of principal and fluctuation of value.
3 Need for diversification: REITs offer low correlation versus other major asset classes
Portfolio diversification has emerged as an increasingly important criteria for investors due to several factors including valuation concerns, geopolitical risks and economic uncertainty.
Specifically, within an equity allocation REITs have among the lowest correlation to the technology sector. REITs could therefore offer a way to diversify away from tech and provide a different source of returns in the form of current income.
Figure 4: REITs’ moderate correlation to Technology can offer portfolio diversification
Source: Janus Henderson Investors, Bloomberg. Daily returns for FTSE NAREIT Equity REITs Index, S&P Level 1 GICS Indices from September 2016 (when REITs was added as a standalone GICS sector) to 31 December 2025. Past performance does not predict future returns.
Where do we see the most attractive real estate opportunities today?
2025 marked a year in which international markets led the US, notably stocks in Asia. Here, Japanese property companies benefited from a well-bid property market showing inflation in asset values, alongside corporate reform measures, which are catalysing discounted equity valuations. The Hong Kong property market is also emerging from a period in the doldrums, with discounted shares only recently starting to recover, but offering further to go. Over in Europe, the pickup in merger and acquisition (M&A) activity is shining a lens on discounted equity valuations in a recovering market, opportunities that private equity players are looking to take advantage of.
At a sector level, we have grown more constructive on the US industrial/logistics space, as we see signs of an inflection in occupancy rates. Many companies in the space are also benefiting from the potential to add value through data centre development on the industrial land that they own.
We remain positive on senior housing, with many REITs looking to have the potential to achieve another year of double-digit earnings growth. With a 4%+ compound annual growth rate (CAGR) in the US population aged 80+ through 2030, we see a continued runway for further outperformance in this sector. Meanwhile, the weakness in share prices in data centres is at odds with historically strong fundamentals and a visible runway for high single digit earnings growth in the years ahead. We have also built exposure in more cyclical parts of the property market, such as in US homebuilders, and the property brokerage space.
REIT performance in election cycles: Investors have valued REIT’s defensive characteristics
Finally, for those looking to history for clues as to what may lay ahead, US REITs have offered compelling mid-term election year performance. Going back 35 years, US REITs have been the top GICS sector with the highest hit rate (the percentage of positions that have generated positive returns over a given period). Perhaps the currently overlooked defensive characteristics of REITs can be beneficial should there be any potential uncertainty.
So, having flown under the radar in recent years, perhaps it’s worth revisiting a real asset that is still in the early stages of recovery. But don’t take that from us alone, it’s also a view echoed by Blackstone, the largest global private real estate investor:
“Commercial real estate is moving into a new part of the cycle, creating what we believe is one of the most attractive entry points for investors in recent years.”
Blackstone; “Real Estate Enters the Next Phase of the Cycle”; 2 January 2026.
1Morningstar; FTSE EPRA Nareit Developed Index; 12-month return to 31 December 2025. Past performance does not predict future returns.
IMPORTANT INFORMATION
REITs or Real Estate Investment Trusts invest in real estate, through direct ownership of property assets, property shares or mortgages. As they are listed on a stock exchange, REITs are usually highly liquid and trade like shares.
Real estate securities, including Real Estate Investment Trusts (REITs), are sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, supply and demand, and the management skill and creditworthiness of the company. Additionally, REITs could fail to qualify for certain tax-benefits or registration exemptions which could produce adverse economic consequences.
FTSE EPRA Nareit Developed Index tracks the performance of real estate companies and real estate investment trusts (REITs) from developed market countries.
FTSE EPRA Nareit Global Index is designed to represent general trends in eligible real estate equities worldwide. Relevant activities are defined as the ownership, trading and development of income-producing real estate.
FTSE Nareit Equity REITs Index is representative of listed securities in the commercial real estate space across the US economy, excluding timber and infrastructure REITs.
Green Street Commercial Property Price Index is a time series of unleveraged U.S. commercial property values that captures the prices at which commercial real estate transactions are currently being negotiated and contracted.
S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
Compound Annual Growth Rate (CAGR): Measures an investment’s annual growth rate over time, including the effect of compounding (where any income is reinvested to generate additional returns). CAGR is typically used to measure and compare the past performance of investments or to project their expected future returns.
Correlation: How far the price movements of two variables (e.g., equity or fund returns) move in relation to each other. A correlation of +1.0 means that both variables have a strong association in the direction they move. If they have a correlation of –1.0, they move in opposite directions. A figure near zero suggests a weak or non-existent relationship between the two variables.
Dividend yield: A measure of the annual value of dividends received relative to the market value per share of a security.
Funds From Operations (FFO): A key metric used to evaluate a REIT’s cash flow and operating performance. FFO adjusts net income by adding back depreciation and amortization while subtracting property sales gains and interest income to reflect REITs’ true operational earnings.
Multiple de-rating: Multiples are financial tools used to assess a company’s valuation by helping to compare companies’ valuations within the same industry. In the case of equities, a de-rating refers to the downward adjustment of a company’s multiples (financial ratios), such as the price-to-earnings (P/E) ratio, in response to business or market uncertainty.
Price-to-earnings (P/E) ratio: A popular ratio used to value a company’s shares compared to other stocks or a benchmark index. It is calculated by dividing the current share price by its earnings per share.
Real estate investment trust (REITs): An investment vehicle that invests in real estate through direct ownership of property assets, property shares, or mortgages. As they are listed on a stock exchange, REITs are usually highly-liquid and trade like shares. Real estate securities, including REITs, may be subject to additional risks including interest-rate, management, tax, economic, environmental, and concentration risks.
Standard deviation: A statistic that measures the variation or dispersion of a set of values/data in relation to a mean. In terms of valuing investments, standard deviation can provide a gauge of the historical volatility of an investment.
Volatility: the rate and extent at which the price of a portfolio, security or index, moves up and down.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
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Important information
Please read the following important information regarding funds related to this article.
- Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
- The Fund is focused towards particular industries or investment themes and may be heavily impacted by factors such as changes in government regulation, increased price competition, technological advancements and other adverse events.
- This Fund may have a particularly concentrated portfolio relative to its investment universe or other funds in its sector. An adverse event impacting even a small number of holdings could create significant volatility or losses for the Fund.
- The Fund invests in real estate investment trusts (REITs) and other companies or funds engaged in property investment, which involve risks above those associated with investing directly in property. In particular, REITs may be subject to less strict regulation than the Fund itself and may experience greater volatility than their underlying assets.
- The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
- When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
- Some or all of the ongoing charges may be taken from capital, which may erode capital or reduce potential for capital growth.
- The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
- In addition to income, this share class may distribute realised and unrealised capital gains and original capital invested. Fees, charges and expenses are also deducted from capital. Both factors may result in capital erosion and reduced potential for capital growth. Investors should also note that distributions of this nature may be treated (and taxable) as income depending on local tax legislation.
Specific risks
- Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
- The Fund is focused towards particular industries or investment themes and may be heavily impacted by factors such as changes in government regulation, increased price competition, technological advancements and other adverse events.
- The Fund invests in real estate investment trusts (REITs) and other companies or funds engaged in property investment, which involve risks above those associated with investing directly in property. In particular, REITs may be subject to less strict regulation than the Fund itself and may experience greater volatility than their underlying assets.
- The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
- When the Fund, or a share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency (hedge), the hedging strategy itself may positively or negatively impact the value of the Fund due to differences in short-term interest rates between the currencies.
- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
- Some or all of the ongoing charges may be taken from capital, which may erode capital or reduce potential for capital growth.
- The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
- In addition to income, this share class may distribute realised and unrealised capital gains and original capital invested. Fees, charges and expenses are also deducted from capital. Both factors may result in capital erosion and reduced potential for capital growth. Investors should also note that distributions of this nature may be treated (and taxable) as income depending on local tax legislation.