A pattern has emerged in the past year or so in which publicly traded REIT total returns have moved in an inverse direction to the 10-year Treasury yield. When yields have been rising, REITs have gone down and vice versa.

So far in 2025, 10-year Treasury yields are off recent peaks. And REIT total returns have been up year-to-date, even amid some of the broader stock market volatility. Through the end of February, REIT total returns were up about 5% for the year.

But while this inverse relationship has held firm for a period, it isn’t always the case. In fact, there are periods when REIT total returns and Treasury yields move in the same direction. To try and better understand the dynamic between REITs and interest rates, Nareit released a series of research pieces in the past months, examining different variables.
WealthManagement.com spoke with Edward F. Pierzak, Nareit’s senior vice president of research, about REIT returns to date in 2025 and the recent research pieces.

This interview has been edited for style, length and clarity

WealthManagement.com: Start with February’s performance and year-to-date performance. How are REITs faring amid some of the recent volatility?

Ed Pierzak: The FTSE Nareit All Equity REITs index had strong returns in February, up 4.2% and on the year, is now up 5.3%, compared with the S&P 500, which is up year-to-date 1.4% in the same period. So it’s strong performance relative to the broader market.

Related:Q&A: Public REITs Can Weather Higher Interest Rates

We’ve talked about the inverse relationship with the 10-year Treasury yield for some time. REITs had weaker performance at the end of 2024, and a lot of that stemmed from the rise in December and into January of the 10-year Treasury, which rose about 65 basis points.

Today, the yield is back down to where it was at the beginning of December 2024. As we saw that drop, we’ve seen stronger REIT performance.

WM: Does anything stand out on the positive and negative side among specific property types?

EP: One that stands out is data centers. Performance in February and year-to-date are both negative with total returns down almost 7% year-to-date. That, at least in part, stems from the announcement of the DeepSeek AI and, with that, concerns about whether it will impact demand for data center space.

Analyst Green Street immediately had a webinar, and they started with the assumption that the tech is viable, scalable and going to deliver on everything it promises and then tried to figure out, “What does this mean for demand for data centers?” Their take was that if you thought before that demand was the equivalent of wanting an extra-large pizza, if all the DeepSeek claims come to fruition, the demand for data centers instead would become a large pizza.

Related:2025 Outlook Q&A: Active Management Key to Higher CRE Returns

So, even if everything holds true, we will still see strong demand for data centers. It will only be changing on the margins. Overall, that’s good news for the sector.

On the positive side, industrial REIT total returns are up almost 15% year-to-date. Industrial had a long period of prosperity, then an imbalance in supply and demand. Now, it’s recalibrated, and it’s seeing strong performance again.

WM: There’s also the dynamic of whether declining yields are signaling increased chances of a recession. Is that a concern right now?

EP: At this point, we don’t think the probability of a recession is coming into play. We look at a couple of metrics. Bloomberg’s February poll of economists put the chances of a recession this year at 25%. The New York Fed also does some estimates, and it’s roughly in the same ballpark. It doesn’t seem like there are concerns of a recession, but there are definitely periods of uncertainty.

WM: So, one of the dynamics we’ve talked about a few times now is the inverse relationship between Treasury yields and REITs in recent times. But you also have done some research that this isn’t a permanent dynamic. You also looked at the relationship between REIT performance and interest rates in some other ways. Can you talk about why you’re doing this and what you have found?

Related:Solid Fundamentals and a Stable Economic Outlook Portend a Solid 2025 for REITs

EP: When we’ve talked about this inverse relationship, we get a lot of reactions from investors. They are worried about high and higher interest rates and what that means for real estate. That worry, in some ways, can be warranted, but it’s a kneejerk reaction. They are thinking, “If rates go up, cap rates go up, and so all else equal, real estate values go down.”

We have come out with a three–part series.

The first one we discussed last month looked at performance overall in periods of low, mid and high interest rates. The good news is that irrespective interest rate levels, real estate, on average, posted positive returns across the board. More important for REITs, they outperformed private real estate in all of those interest rate environments.

The next piece we published looked at changes in yields. We looked at quarterly data and calculated on a rolling four-quarter basis the changes in Treasury yields and also added in the context of whether the economy was experiencing low, mid or high GDP growth. We put an economic backdrop on it.

In periods with rising interest rates, 78% of the time, REITs have posted positive total returns. In declining rate environments, we get similar results: 78.1% of the time, REITs have positive returns. From that, we see that whether rates are rising or falling, REITs can do well.

One key takeaway we got is that in periods of low GDP growth and declining interest rates—quarters with real GDP growth of less than 1% or negative—that’s not a good recipe for REIT performance.

Where we stand today is that the economy is in pretty good shape. Jobs numbers and inflation all look relatively good. We’re not worried about that type of environment.

WM: What does the third piece of research explore?

EP: The last thing we did was examine the relationship between yields and REIT returns, determining when it is inverse and when it is positive.

We went back to 2000 and looked at 180-day rolling correlations between yield changes and REIT returns. We found it’s about 50/50.

Then we added a bit of context. We plotted the 10-year Treasury less the three-year. When that spread is getting larger—steepening or at a high level—we tend to observe a positive relationship between the 10-year and REIT total returns. When it’s decreasing, at a low level or inverted, we tend to see a negative correlation.

An inverted yield curve is often viewed as a signal of a coming recession. The NY Fed has done lots of work on this. They have their way of calculating the curve and the chance of a recession in the next 12 months. In general, as the odds of a recession increase, these tend to be the negative correlation periods.

The message comes out the same. If the outlook on the economy tends to be positive, then we have a positive relationship. If the outlook is pessimistic, we tend to have a negative relationship.

One thing to note is that the yield curve is no longer negative and has improved over the past several months. Although history is no indicator of future outcomes, that means we very well may see a reversal in the relationship between REITs and the 10-year yield.