The macroeconomic backdrop for real estate investment trusts (REITs) in 2023 was volatile, as investors struggled with uncertainty around interest rates, inflation and economic growth. Green shoots around stabilization in each of those metrics led to some optimism early in the year as inflation began to cool; however, as the year progressed and the Fed continued to raise interest rates and the 10-year US Treasury touched 5%, global REITs retreated to negative territory, bottoming out in October. In the fourth quarter of 2023, clarity around the end of Fed rate hikes and tempering inflation in most parts of the world led many investors to believe that the elusive soft landing had been achieved. As a result, global REITs rallied sharply and finished the year up nearly 10%, led by U.S. REITs up nearly 14% in 2023.

• The U.S. REIT market closed out 2023 on an exceptionally strong note, posting a 15.5% total return in the fourth quarter, with gains of nearly 10% in December alone. The REIT market was the best-performing subsector among the 11 S&P 500 Global Industry Classification Standard classifications for the fourth quarter. The group benefited from a dramatic shift in rates, with the 10-year dropping more than 100 basis points from its mid-October peak of 5.0%.
• The European REIT market finished the year with a dramatic rally in the fourth quarter of 2023, producing a total return (U.S. dollar gross total return) of 26.8% in the fourth quarter as equity markets rebounded on softening inflation data and an improving interest rate outlook. The exceptionally strong fourth quarter was enough to put Europe far ahead of other global regions for 2023 after its disappointing relative performance in 2022 on leverage concerns as the interest-rate-tightening cycle took off.
• Asia Pacific (APAC) real estate equities closed the December 2023 quarter up 7.4% in U.S. dollar terms, albeit the increase paled in comparison to far stronger average returns witnessed in the United States and the European Union. Markets were no doubt helped in mid-December by a surprising pivot in the Fed outlook, when the Fed chair announced rate cuts rather than hikes going forward.