REIT industry and sector performance for the fourth quarter of 2025 was the focus of the Jan. 13 webinar, “FTSE Nareit U.S. Real Estate Indexes in Review & What’s Next.”
Hosted by Nareit and Institutional Real Estate, Inc. (IREI), the quarterly webinar featured John Worth, executive vice president of research & investor outreach at Nareit, and Ji Zhang, senior vice president and portfolio manager of global real estate at Cohen & Steers. Mike Consol, senior editor of IREI’s Real Asset Adviser magazine, moderated the discussion.
Worth kicked off the webinar with an overview of REIT performance in the fourth quarter, acknowledging that REITs had a tough December; total returns for the FTSE Nareit All Equity REIT Index (All Equity) were down 2.1%. He added that despite that decline, the index remained positive for the year and was up 2.3%. “Relative to expectations coming into the year, this was disappointing and even frustrating given that REITs delivered solid operational results over the year,” Worth said. “Yet versus the S&P 500 and tech stocks, they weren’t rewarded by investors in terms of returns. However, we think that will set the stage for 2026.”
Delving into sector performance, Worth noted that health care was the best performing sector for the year (28.5%), followed by industrial (17%). Industrial had “a pretty interesting recovery—it was battered by trade news earlier in the year but showed a really strong recovery and demand trajectory toward the end of the year,” he remarked.
In addition, Worth and Zhang shared observations about the following range of topics and sectors.
Valuation divergences: Worth discussed the two divergences characterizing the landscape: the divergence between REITs and equities and the ongoing gap between public and private real estate valuations. He explained that historically when these divergences have converged, “REITs have outperformed pretty dramatically.”
Commenting further on the public and private real estate valuation gap, Zhang highlighted the merits of having both in a portfolio but pointed out the “pretty obvious arbitrage opportunity in the short term.” Using industrial as an example, Zhang said the sector has a 150-200 basis point spread when comparing the NCRIEF and All Equity indices. “So, you can get the same thing, but much cheaper in the public market,” she concluded.
Global REIT performance: Over the past 10 years, the U.S. REIT market has outperformed the developed European and Asia markets. Worth talked about how that changed in 2025, with Asia (30%) and Europe (21%) outperforming the U.S. (3%). Though some of the performance was driven by the dollar’s decline and exchange rates, Worth noted that 2025 “made the case for why you need a global portfolio because this year showed the real value of diversification over geography.”
Zhang picked up this theme. “We’re going from a world that was synchronized over the last decade, to one where monetary policy, fiscal policy, and other factors are all different globally,” she said. “2025 was the year of recognition that investors don’t want to have U.S.-concentrated portfolios, they want exposure to different economic cycles and real estate dynamics in different sectors.”
Data centers: Noting data centers total returns of -14% for the year, Zhang and Worth emphasized that it is important to look at that decline in the context of the last couple years of massive outperformance, and in the context of last year’s tech cycle. In 2025, “it was buy everything AI-related; it was more quantity over quality,” Zhang said. “What I like about REITs is that they’re focused on quality…they’re focused on markets where they see resilience and greatest pricing power.”
She also discussed REITs’ long-term nature and the embedded growth in the companies, which is due to leases that are significantly below market rent. “That is really favorable in terms of sustained and accelerated cash flow growth…. the valuation set up is quite attractive” and data centers remain “one of our highest conviction sectors,” Zhang added.
Worth also expounded on the positive attributes of data center REITs and why they offer the best access to AI. “They have great credit quality and a lot of capex that will be very accretive to growth and earnings…. publicly listed REITs also offer a portfolio of data centers plus development on top, which we think is a much safer way to play AI.”
Health care: Worth and Zhang both described health care—especially senior housing—as a standout opportunity for REITs. Worth spoke about the strong performance across most aspects of the sector, with senior housing being “the tip of the spear in terms of increasing growth.” He explained that the limited new construction after COVID, and rising demand from the 80-plus population, have created a favorable supply-demand dynamic that continues today—and that REITs have been innovative in capturing this momentum.
Zhang echoed that view and highlighted that REITs are outperforming private peers “in terms of NOI growth and occupancy,” and are using strong operating platforms to acquire and improve underperforming assets. “We like health care broadly, and senior housing stands out…. it’s a sector with durable demand drivers,” she said.
Property types to watch: In addition to data centers and health care, Zhang noted that she is focusing on office, while Worth said that he thinks retail will be interesting.
“As we look at indicators that point to earnings growth, we feel quite good about how office REITs are positioned,” Zhang remarked. She explained that they’re seeing leasing momentum in New York City and San Francisco, and that REITs are “well capitalized and own better portfolios.” That’s why she thinks “capital will start to recognize the inflection of fundamentals” in the sector.
Worth discussed the supply / demand dynamics around retail, saying that the sector hasn’t seen much supply come online during a time when REIT-owned malls, grocery-anchored strip centers, and net lease properties have done well. He also expressed optimism for broad-based performance across all sectors once the valuation divergences converge and more investors come back to REITs.
Disruptive technologies: The increased adoption of different types of automation, including self-driving cars—could “play out in ways we can’t see,” Worth said. Using self-driving cars as an example, he elaborated on how they could significantly affect where people live and how they get to work. “I don’t think anyone going into COVID could have foreseen it would have a permanent imprint on how we use the workspace,” he noted. “So, we may see some more changes out of these technologies than we expect.”
Zhang added another angle, cautioning that people need to be more discerning about the implications of technological changes. Speaking about AI, Zhang noted that the unemployment rate for undergraduates and college graduates is elevated, and the initial reaction is that AI will eliminate all entry-level jobs. Yet “they will be the smartest users of AI technology,” she concluded. “So, it’s not smart to not hire those people.” She wrapped up by saying “I think there are a lot of initial knee jerk reactions to how this will play out, but the reality will be much more complex.”
Other topics of discussion included cold storage, timber, single family rentals, the transaction environment, institutional investors’ use of REITs, and more. Watch the webinar to hear the whole conversation.
The next webinar will be April 7 and will analyze first quarter performance of the FTSE Nareit U.S. Real Estate Indexes. Sign up to receive updates about that webinar, other events, and research.
Additional Resources
Nareit Quarterly Research Letter: Get a quick summary of Nareit’s research and analyses.
Nareit Market Commentaries: Read analyses of the macro and microeconomic fundamentals affecting the REIT and CRE industries.
REIT Market Data: Find daily, monthly, quarterly, and yearly reports on REITs.
Research Library: Don't miss the latest REIT research.