REITs Pay 3.7%. Treasuries Pay 5.2%. So Why Are Real Estate Stocks Still Beating the Market This Year?
- Equity REITs returned 14.5% year to date through August 2026, vs 13.5% for the Dow Jones US Total Stock Market, per Nareit. REITs fell 2.7% in August.
- Leaders: lodging/resorts +36.6%, data centres +33.0%, specialty REITs +30.2%. Mortgage REITs were down about 5%, and commercial mortgage REITs about 17%.
- At the end of August, equity REITs yielded 3.68%, vs 1.02% for the S&P 500 and 13.15% for mortgage REITs. The 10-year Treasury was 4.75%.
- The 10-year Treasury yield has since risen to about 5.23% (Sept. 25), its highest since 2007.
- Forward price-to-FFO multiples range from about 27.5x for data centres to 8.1x for office REITs.
The rule that didn't hold in 2026
Ask any investing textbook what happens to real estate stocks when bond yields rise, and it will say they fall. REITs pay out most of their income as dividends, so they compete with bonds for income investors. And they borrow heavily, so higher rates raise their costs.
In 2026, the rule bent. Through August, equity REITs returned 14.5%, according to Nareit, slightly ahead of the 13.5% return for the Dow Jones US Total Stock Market. That happened while the 10-year Treasury yield was climbing.
The catch: the yield gap flipped
At the end of August, the average equity REIT yielded 3.68%. The 10-year Treasury yielded 4.75%. It has since risen to about 5.23%.
For most of the past decade, REITs paid more than Treasuries. Now a risk-free government bond pays about 1.5 points more than the average REIT. That means REIT investors are no longer buying for income alone. They're betting on growth in rents and property values.
That raises the bar. And it shows up in the recent numbers: REITs fell 2.7% in August as yields rose, and September's jump to 5%+ has added pressure.
Not all real estate is the same
The average hides huge differences:
| Property type | 2026 YTD return (through Aug.) |
|---|---|
| Lodging / resorts | +36.6% |
| Data centres | +33.0% |
| Specialty REITs | +30.2% |
| Mortgage REITs (all) | about -5% |
| Commercial mortgage REITs | about -17% |
Data centres are riding the AI boom. Demand for computing space is so strong that rents are rising faster than borrowing costs. That's why they trade at about 27.5 times forward FFO, the highest of any property type.
Office REITs trade at about 8.1 times FFO. Investors still doubt that demand will return to pre-2020 levels.
Mortgage REITs yield about 13%, but they're a bet on interest rates, not real estate. When rates jump quickly, their book values can fall.
Why rate sensitivity has weakened
Three reasons REITs have held up better than expected:
- Growth sectors. Data centres, cell towers and some specialty REITs have pricing power that outpaces higher interest costs.
- Stronger balance sheets. Many REITs locked in long-term fixed-rate debt when rates were low. Their borrowing costs rise slowly as old debt matures.
- Starting valuations. REITs fell hard in 2022 and 2023, so a lot of rate risk was already priced in.
What to check before buying a REIT now
- Debt maturities. How much debt comes due in the next two to three years? Refinancing at today's rates could squeeze cash flow.
- Fixed vs floating debt. Floating-rate debt gets more expensive immediately.
- Rent growth vs interest costs. Is same-property income growing faster than interest expense?
- Payout ratio. Dividends above about 90% of adjusted FFO leave little room if things go wrong.
- Price-to-FFO. The REIT version of a P/E. Compare it with the property type's average, not the whole market.
New to REITs? Start with REITs Explained.
For income investors: REITs vs Treasuries
If you want guaranteed income, a Treasury at 5.2% held to maturity beats the average REIT yield today, with no credit risk. See how to lock in that yield.
If you want income that can grow with inflation over time, REITs still have a role. Many raise dividends as rents rise. A small allocation through a broad REIT ETF spreads the risk across property types.
Canadians: Canadian REITs follow Government of Canada bond yields, which have risen with US yields. REIT distributions in a non-registered account are often taxed differently from regular dividends, so they're usually best held in a TFSA or RRSP.
The honest uncertainty
REITs have defied rising yields so far this year, largely thanks to a few booming property types. If yields keep climbing, the pressure on the rest of the sector will grow. If yields fall on a US-Iran deal or cooler inflation, REITs could rally hard. Either way, know which kind of real estate you own.
Frequently asked questions
Do REITs go down when interest rates go up?
Often, but not always. Higher bond yields make REIT dividends less attractive by comparison and raise REITs' borrowing costs. But REITs with strong rent growth, such as data centres in 2026, can rise anyway. Through August 2026, equity REITs returned 14.5% even though the 10-year Treasury yield rose.
What is the average REIT dividend yield in 2026?
The FTSE Nareit equity REIT index yielded about 3.68% at the end of August 2026, according to Nareit. Mortgage REITs yielded about 13.15%.
Why do mortgage REITs pay such high dividends?
Mortgage REITs borrow money to buy mortgages and mortgage bonds, earning the gap between their borrowing cost and the interest they collect. High yields reflect high risk: when rates rise or spreads move against them, their book value and dividends can fall quickly. Commercial mortgage REITs were down about 17% in 2026 through August.
What is FFO?
Funds from operations is the standard profit measure for REITs. It adds back depreciation to net income, because buildings usually don't lose value the way accounting depreciation assumes. Price-to-FFO works like a P/E ratio for REITs.
Primary sources
Data & disclaimer: This article is for educational purposes only and is not financial or investment advice. Figures reflect data available as of Sep 26, 2026, and conditions change — always confirm current pricing, rates and rules with the provider before you act. Written by Elizabeta Dimoska. See our editorial standards and disclosure.
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