Real estate investment trusts (REITs) allow investors to buy shares in real estate companies. By law, at least 75% of REITs’ assets must be real estate-related, and at least 75% of REITs’ income must come from real estate.
These securities must also pay out at least 90% of their profits to investors, in the form of dividends.
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Historically, REITs have performed quite well. Data from Nareit and YCharts shows that from 1972-2024, U.S. REITs returned an average annual return of 12.6% — compared to 8% for the S&P 500. But over the last five years, REITs have underperformed, averaging just 5.5% annually compared to a galloping 15.3% for the S&P 500.
But how recession-resilient are REITs? Do they offer protection against downturns?
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How REITs Perform Before, During and After Recessions
When the economy enters a recession, REITs have historically taken a nosedive.
An analysis of economic cycles from 1991-2024 by Neuberger Berman found that during recessions, REITs returned an average of -17.6%. For context, the S&P 500 did even worse, losing more than 20% on average.
Edward Pierzak, SVP of research at Nareit, noted that REITs still deliver positive returns before recessions, averaging 5.7% in the 12 months leading up to the last six recessions. “Over the past six recessions, REITs outperformed private real estate during a recession, and they also outperformed private real estate in the four quarters after a recession.”
In fact, REITs shine especially bright immediately after recessions. In the 12 months after the last six recessions, REITs have returned an average of 22.7%.
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Why Do REITs Rebound So Fast From Recessions?
Real estate — especially commercial real estate, which includes apartment buildings — is extremely sensitive to interest rates. Cap rates, which determine real estate values, tend to move in lockstep with interest rates.
Central banks nearly always cut interest rates during recessions. That pulls down cap rates, which drives up commercial property prices. The drop in interest rates tends to happen quickly in recessions, which sets up REITs for a fast rebound.
Because REITs trade on public markets, prices also respond quickly. Financial markets typically trade at what investors think companies will be worth in 12-18 months, rather than what they’re worth today.
Some Asset Classes Are More Resilient
Investors can buy REITs that specialize in different types of real estate assets. For example, some specialize in multifamily properties, while others in office space, hotels or industrial real estate.
“During a recession, sectors like office space and hotels will underperform,” explained Peter Zabierek, CEO and REIT portfolio manager at Sugi Capital Management. “But others, like data centers and cell towers, will outperform.”
Indeed, a 2025 analysis by Wide Moat Research found that data centers, healthcare and triple net leases prove especially recession-resilient. REITs that own hotels, billboards and mortgage loans tend to fall much further.
What does all this mean for investors? First, REITs don’t decline as much as the broader stock market during recessions. Second, healthcare and data center REITs offer particular resilience if you see a recession coming.
Finally, REITs tend to rebound quickly, making them a particularly strong buy during the darkest days of a recession.
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This article originally appeared on GOBankingRates.com: How Recession-Resilient Are REITs?
