- REITs often decline during recessions, with an average return of -17.6%, but still outperform the broader S&P 500 during downturns.
- Post-recession recovery is a strength, with REITs delivering an average 22.7% return in the 12 months following past six recessions.
- Some REIT sectors hold up better, particularly data centers, healthcare, and triple-net leases, while hotel and office REITs typically underperform.
The Big Picture
Real estate investment trusts (REITs) offer a way for investors to gain exposure to income-producing property without owning physical assets. Legally, REITs must invest at least 75% of their assets in real estate and distribute at least 90% of taxable income as dividends—making them attractive in stable times, according to GoBankingRates. But what happens when the economy tanks?
REITs in Recessions: Not Immune, But Resilient
Historical data from Neuberger Berman shows REITs returned -17.6% on average during recessions between 1991 and 2024. That’s steep, but slightly better than the S&P 500’s average loss of over 20% in the same periods.
Still, there’s a silver lining. According to Nareit, REITs typically return 5.7% in the year leading up to a recession, and in the year following, they bounce back with an impressive 22.7% average gain—outperforming both stocks and private real estate.
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Why the Quick Rebound?
Two key reasons: interest rates and market dynamics.
- Interest Rates: Recessions usually prompt central banks to slash interest rates, which lowers cap rates and increases property values—boosting REITs.
- Public Market Pricing: Since REITs are publicly traded, prices reflect forward-looking expectations, not just present conditions. That means they often recover before the economy does.
Not All REITs Are Created Equal
Performance varies significantly by sector:
- More resilient: Data centers, healthcare facilities, and REITs with triple-net lease structures.
- Vulnerable sectors: Hospitality, billboards, office space, and mortgage REITs tend to fall harder during recessions.
As Peter Zabierek of Sugi Capital puts it, “During a recession, sectors like office space and hotels will underperform. But others, like data centers and cell towers, will outperform.”
Bottom Line
REITs can’t fully shield investors from recession losses—but they do offer relative protection and often stage faster recoveries. Investors worried about downturns might consider shifting toward more resilient sectors like healthcare and infrastructure-based REITs.
In tough times, the right REITs may offer both income and long-term upside.
