FTSE Nareit All Equity REITs Index total returns were up about 20% year-to-date as of late last week, boosted by a strong July, with total returns up nearly 5% for the month. That compares with a roughly 9% year-to-date gain for the S&P 500 over the same period.

The results have helped narrow a gap that had emerged between REIT multiples. At the end of 2025, Nareit noted that the average ratio of the S&P 500 P/E to equity REIT P/FFO (which, for most of the past 20 years, has been 1 had widened to 1.3. Historically, when such divergences emerged (most notably during the Great Financial Crisis and the COVID-19 recession in 2020), REITs tended to outperform the broader market as the gap narrowed.

That process has played out in 2025, although the gap has not fully narrowed, representing a potential opportunity for investors.

One factor potentially driving those results has been that many investors have looked to diversify their portfolios in 2026 amid heightened concerns around concentration risk. The run-up in the equities market in recent years, particularly among the so-called Magnificent 7 stocks, has left many portfolios out of balance. There are also concerns about the risk of overvaluation in the tech sector, as well as increased market volatility stemming from disruptions caused by the war in Iran. As a result, a big theme for the year has been the concept of “resilient portfolios,” with some investors potentially turning to REITs as part of that rotation.

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In a separate study, Nareit recently assessed how REITs performed globally amid turmoil in the Middle East. It found that North America has led global real estate higher, returning 22.9% in 2026, while developed Europe has gained 2.9%, and developed Asia is down -1.5%. (That divergence may in part be a function of the U.S. being more insulated to energy shocks than Europe or Asia.)

Wealth Management spoke with John Worth, executive vice president for research and investor outreach with Nareit, about REIT total returns, Nareit’s Midyear Outlook and how REITs have performed in the face of the Iran war.

This interview has been edited for clarity and length.

Wealth Management: Let’s start with your midyear outlook. Can you highlight a few takeaways from that report?

John Worth: We continue to see this divergence between REITs and private real estate and REITs and equities. It’s something we talked about coming into the year with as “dual divergences.”

So far in 2026, we’ve seen convergence on the equities side. REITs (up 20% year-to-date) have had meaningful outperformance. There have been strong REIT earnings so far in 2026, and the overall market performance has brought the ratios of multiples back into line. There is still room to run. The convergence has closed by about half.

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On the private side, we still have seen the convergence. (The divergence is measured by the difference in private real estate appraised cap rates and the implied cap rate of the FTSE index.) But the REIT outperformance in 2026 puts more pressure on that divergence with the private side to get those marks aligned at some point.

WM: One line that also caught my eye in the outlook was the observation that now more than 50% of REIT market capitalization is new and emerging property sectors. That feels like a significant milestone, especially since we still tend to think about real estate as being heavily dominated by the four “traditional” sectors of office, retail, residential and industrial.

JW: That’s right. New and emerging sectors now account for 56% of the FTSE Nareit All Equity index. And you can make the argument that 56% understates it. Take residential, which now includes single-family rentals and manufactured housing, which are newer categories. And industrial is a totally different business today than it was in 2000. You can make the argument that the number should be pushing 70% or above.

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What’s also amazing is if you look at ODCE private real estate funds, those are still very much focused on the traditional property sectors. In all, 89% of the ODCE index remains focused on traditional real estate. That doesn’t mean there are not lots of private funds being stood up to invest in newer sectors, but in the core funds, which are central, it’s still a traditional property type strategy.

WM: That would seem to speak to another idea we’ve discussed before—looking to REITs as part of a completion strategy since you can gain access to sectors that are harder to get to on the private side. I think of data centers, for example, which is not a sector that you can just jump into in contrast with, say, triple-net leased retail.

JW: Yes. It’s not like buying a couple of apartment buildings and finding a local manager. Data centers are a totally different creature because of the scale and management efficiencies. They have fit well in public markets. We have already seen one data center REIT IPO (Blackstone) this year and there may be more.

On the complete portfolio concept, we also recently looked at a U.S. state pension plan that had launched an actively-managed completion portfolio strategy in 2018, where it added REITs to complement its private real estate. The completion strategy has been up 162% since inception, outperforming a passive REIT completion strategy (up 135%), the FTSE Nareit All Equity (up 80%) and the ODCE index (up 35%) in that span.

They’ve been able to achieve some alpha generation by cycling between sectors. It’s a great example for answering, “Does it work?” when it comes to completion portfolios.

WM: Pivoting to year-to-date returns, what stands out?

JW: The best performing property sector in 2026 is lodging (up 50%). It’s been a big bounce-back year. Much of that was in the second quarter, with total returns up 36%. A lot of that has been driven by operating performance. Lodging REITs in the first quarter returned year-over-year FFO growth of 10%, NOI growth of 7% and all occupancy rates were up. We’re in the middle of second-quarter earnings season now, and that strong performance looks like it has continued.

Beyond that, data centers are up nearly 36% in 2026, which is not a surprise and is a nice rebound from 2025, when the segment ended down 14%. That is driven by a lot of enthusiasm for AI-driven applications, even though REIT data centers are not the ones used for training models, they are going to get growth and demand from inference.

Additionally, specialty REITs are up 38%, primarily led by outdoor advertising REITs. And then we’ve got healthcare up 29.5%. It was the best-performing segment last year, and that has continued with good supply/demand fundamentals.

Self-storage REITs are also rebounding this year after a couple of years of underperformance. They are up 26.4% for the year. It was one of the darlings of the COVID era, and that outperformance drew a huge increase in supply, a lot of which was driven by mom & pops. People were making TikTok videos about how to open a self-storage facility. Now the market has consumed that oversupply, and self-storage REITs are starting to see pricing power come back.

Lastly, office is up 17.4% for the year, including up 34% in the second quarter. We saw office take a hit early in the year when there were concerns that AI was going to wipe out white-collar jobs. But that’s running counter to what office REITs are seeing, which is that AI is generating demand for space, particularly in high-quality, well-located office buildings. There is a lot of demand from AI-driven startups, which has created a downdraft for office REITs.

WM: Lastly, you looked at REIT performance amid the volatility generated by the turmoil in the Middle East. What can you tell us about that?

JW: Notably, North America REITs (which is predominantly U.S. REITs), were initially down 5.8% from February 27 to March 31. That trough was not nearly as large as Asia, which was down 13% and Europe, down 16%. Going into the conflict, all three regions were up around 10%-11%.

From there, it’s been a very different story between the U.S., Europe and Asia. The U.S. recovered quite quickly, recouped its losses and started growing again.

In total, since March 31, North American REITs are up 17.4%, whereas Asia and Europe have had a much flatter trajectory. Europe has essentially moved sideways and not regained its pre-conflict peak. And Asia is up just 2.5% since the ceasefire and still down significantly from where it was when the conflict began.

A big piece of that divergence is driven by the degree to which countries are resilient with their energy supply. The U.S. is a little more insulated from higher global energy prices. As we look through since July 7, when the memorandum of agreement was terminated, it hasn’t put a dent in U.S. REIT returns. They are up 2.7% over that period vs. a more muted response in Asia and Europe.

U.S. consumers have proven to be very resilient. And from what we’re seeing in earnings so far, REIT operating performance has not been affected. So there remain significant macro risks if there is a meaningful restart of hostilities, but at least in the first go round, U.S. real estate markets were quite resilient.