REITS SET SAIL FOR A STEADY RECOVERY

PGIM’s Rick Romano, CFA, explains why potential Fed rate cuts and discounted valuations versus equities support a continued REIT recovery in 2026.

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The global real estate investment trusts (REITs) recovery gained momentum in 2025. Now, with inflation moderating and the Fed set to lower rates, the outlook appears promising for income-focused assets offering stable returns and growth potential as markets improve.

 

KEY GROWTH DRIVERS FOR 2026

Several factors point to a favourable environment for listed REITs:

Constructive macroeconomic backdrop: A stabilising 10-year Treasury is restoring visibility and lowering the cost of capital. Improving liquidity, narrowing credit spreads, and consensus expectations for a global soft landing contribute to positive conditions for the asset class.

Prolonged supply-demand imbalance: Thin construction pipelines—a result of years of elevated financing costs, tariff pressures, and labour shortages—support rent growth and property values across most sectors.

Structural growth themes: Aging demographics and digital transformation fuel durable demand for senior housing, logistics, and data centres. The rapid expansion of AI infrastructure is a key accelerator for tech-oriented real estate.

 

CYCLICAL CATALYSTS

Defensive income: REITs continue to deliver steady cash flow through long-term leases, offering a natural hedge against inflation and equity market volatility.

Compelling valuations supporting mean reversion: REITs are trading at historical discounts to equities. As central banks progress through easing cycles, this valuation gap is expected to narrow, a trend that has historically driven significant REIT outperformance. We see opportunities to capitalise on the situation via REITs associated with powerful secular trends and distinct regional dynamics.

 

DISCOUNTED VALUATIONS FOR REITS VERSUS EQUITIES

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Source: FactSet as of 30/11/2025.

M&A catalysts: Attractive valuations and improving fundamentals may fuel increased private equity interest and public-to-public consolidation, particularly in Europe and Asia-Pacific.

 

REGIONAL OPPORTUNITIES

The recovery has been uneven across regions with international REITs outpacing U.S. REITs in 2025. Global real estate markets present a mixed but broadly positive picture, marked by distinct regional dynamics.

United States: Fundamentals are robust, with strong earnings growth projected for 2026-2027.

Europe: Compelling valuations and M&A activity are creating catalysts, particularly in logistics and data centres.

Asia-Pacific: Monetary easing and structural trends support markets such as Japan (reform-driven), Australia (data centre expansion), and Singapore (industrial resilience).

 

SECTOR HIGHLIGHTS

Defensive leaders: Senior housing and data centres remain top picks, supported by demographic and technological tailwinds.

Resilient retail: Limited new supply and steady consumer traffic bolster necessity based retail and mall REITs.

Cyclical recovery: Apartments and self storage facilities are positioned to rebound, while industrial REITs should benefit from inventory normalisation. 

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As the macroeconomic environment remains resilient, REITs offer a rare blend of defensive income and capital appreciation potential. For long-term investors, 2026 is likely to be a year when resilience meets opportunity.

Rick Romano, CFA, Head of Global Real Estate Securities, PGIM

<p><i>As the macroeconomic environment remains resilient, REITs offer a rare blend of defensive income and capital appreciation potential. For long-term investors, 2026 is likely to be a year when resilience meets opportunity.</i></p>

References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.

 

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