REITs: The Cure for High Rates is High Rates | November 2026

Higher interest rates are creating a temporary valuation dislocation in REITs while restricting new supply and supporting stronger property fundamentals in 2027 and 2028.

• The Vanguard Real Estate ETF fell about 6% from its July 28 peak after the U.S. 10-year Treasury yield reached its highest level since 2002, while futures priced in three more rate hikes by the end of 2027.
• Chilton analyzed approximately $42 billion of 2020–2022 vintage floating-rate apartment loans and found that roughly one in four no longer covered debt service; a $1.3 billion Blackstone multifamily loan subsequently entered special servicing.
• Private-market cap rates are estimated to have risen 25–50 basis points from July, implying a 7–13% NAV decline for REITs at roughly 30% leverage, but the median REIT already trades at a 10% discount to NAV and large-cap REITs at a 15% discount to Green Street's estimate.
• Higher rates have a limited earnings effect because REITs use predominantly fixed-rate, long-dated debt: Chilton's estimate of three-year AFFO growth falls by less than one percentage point, whereas a 25- or 50-basis-point cap-rate increase reduces NAV by about 6.8% or 13.0% at 30% leverage.
• Development is largely uneconomic with construction costs elevated and 10-year secured debt above 6%, reducing future supply; REITs are expected to deliver roughly 10% annual total returns from a 4% dividend yield and 5–7% earnings growth in 2027–2028 before any valuation recovery.

Takeaway: Investors should tolerate near-term rate volatility and worsening private-market headlines because stable demand, declining supply, modest earnings sensitivity and discounted valuations could support REIT returns, although further cap-rate increases remain the key risk.