When considering Real Estate Investment Trusts (REITs), it’s essential to recognize the diversity within the real estate market. Different sectors offer unique investment opportunities and risks.
Be strategic. Don’t just diversify for the sake of it. Instead, focus on the REIT sectors with real potential based on where the economy is heading or where market demand is growing, like industrial, logistics, or data centers if e-commerce is booming.
But also, be ready to pivot when necessary. If you notice a sector faltering—like retail or office spaces during a downturn—don’t hesitate to cut your losses. Move fast and reposition your money where growth is stronger.
Essentially, you don’t need to play it safe by spreading thinly across all sectors. Play smart—double down on winners, drop the losers, and keep your portfolio nimble.
2000s: The Early Years of Steady Growth
In the early 2000s, residential REITs were hot, especially in urban areas. People were moving into cities, so apartments were in high demand. REITs like AvalonBay, focused on apartments, thrived during this time. The overall economy was solid, and owning property, particularly residential, felt like a safe bet.
Retail REITs were also cruising, with malls and shopping centers expanding. Think about it: shopping malls were still huge, online shopping wasn’t quite eating into that space yet, and places like Simon Property Group were doing great.
Healthcare REITs started to get attention too, with an aging population on the horizon, but it was still the early days.
2008 – 2009: The Financial Crisis Hits
Then came the crash. Real estate got hit hard. A lot of sectors struggled, and retail REITs saw trouble as consumer spending dipped and mall traffic started slowing down. The only sectors that held steady were healthcare REITs and some of the residential REITs in markets with strong rental demand, but overall, the mood was pretty bleak.
2010s: E-Commerce Changes the Game
The 2010s were when things really started to shift. After the crisis, industrial REITs suddenly became the hot thing. Why? E-commerce was taking off in a big way, and all those online retailers like Amazon needed warehouses and fulfillment centers. Prologis and other industrial REITs saw massive growth because they were building the infrastructure for the entire online shopping world. The more people shopped online, the more these REITs boomed.
At the same time, data center REITs started getting real attention around the early 2010s. With cloud computing, streaming services, and more people storing data online, companies like Equinix and Digital Realty Trust saw a huge opportunity. These data centers were the backbone of the internet boom, and the sector went from niche to crucial.
Meanwhile, retail REITs were starting to see the first cracks. Online shopping was becoming more of a threat, and traditional malls were starting to empty out. However, grocery-anchored centers and essential retail (think Target, Walgreens) stayed strong, as people still needed everyday items.
Healthcare REITs continued to rise as Baby Boomers started hitting retirement age, and senior housing and medical facilities became more in demand. Welltower and Ventas capitalized on this trend throughout the decade.
2016 – 2020: Tech and Demographic Shifts Take Over
By the mid-2010s, data center REITs were absolutely booming. Everyone needed more digital storage for their data, especially with the rise of social media, streaming platforms like Netflix, and cloud-based services. These REITs were effectively renting out space for the internet to exist, and business was thriving.
At the same time, industrial REITs were still riding the e-commerce wave. Amazon was expanding its fulfillment network, and companies around the globe were modernizing their logistics to compete. Warehousing wasn’t just about storing goods anymore—it was about getting stuff to people fast.
Residential REITs started to pivot too. It wasn’t just apartments in cities anymore. People were starting to move out to suburbs, and the single-family rental (SFR) market became a bigger deal, especially as homeownership felt out of reach for many millennials.
Retail REITs had split by this point. Traditional malls were struggling, but necessity-based retail—grocery stores, pharmacies—kept afloat. Malls were reinventing themselves as places of “experience,” but it was still an uphill battle.
2020 – 2024: Pandemic and Beyond
Then the pandemic hit. 2020 threw everything into chaos, and REITs had to adapt quickly.
Retail REITs, especially those tied to malls, got hammered. People weren’t shopping in person, and the ongoing shift to e-commerce put even more pressure on these properties. But industrial REITs? They thrived. The surge in online shopping during lockdowns made logistics and warehouse space more crucial than ever. Prologis, for example, was expanding like crazy, keeping up with skyrocketing demand.
Data center REITs also did great, as everyone suddenly needed more digital infrastructure. With people working remotely, streaming more content, and doing everything online, data centers became essential. The sector rode the pandemic wave and kept growing.
Interestingly, healthcare REITs had a mixed bag during this time. Some did well with medical offices and hospitals in demand, but senior living facilities took a hit due to COVID-19 concerns.
Residential REITs saw a shift too. With remote work becoming the norm, a lot of people moved out of cities and into more suburban or rural areas, driving demand for single-family rentals. Apartment REITs in high-density urban areas struggled a bit, but single-family homes and suburban rentals became gold.
Retail REITs are a mixed bag in 2024, and the sector has been through a lot of ups and downs over the past decade. Here’s what’s going on:
The Struggles: Traditional Malls and Shopping Centers
What happened: Traditional brick-and-mortar retail has been in decline for a while, thanks to the rise of e-commerce.
Malls that were once packed with shoppers have been hit hard as more people shop online. Big department stores, which used to be the anchors of these malls, have been closing left and right.
Impact: REITs that own these malls (like Simon Property Group or Macerich) have had to adapt or suffer.
Many malls are now trying to reinvent themselves, adding restaurants, entertainment, and even apartments or office spaces to make up for the lack of foot traffic.
This strategy works for some, but the overall demand for traditional mall space is way down from its peak.
The Survivors: Grocery-Anchored and Necessity-Based Retail
What’s thriving: Grocery-anchored centers and necessity-based retail (like pharmacies, discount stores, and big-box retailers) are holding strong.
People still need to go out and buy groceries and essentials, so these types of retail properties are seen as safer bets.
During the pandemic, when malls were shut down, grocery stores and essential services stayed open, and that trend carried through.
Examples: Retail REITs like Kimco Realty and Federal Realty focus on grocery-anchored shopping centers and community strip malls, which continue to see steady demand.
The Shift: Experiential Retail
What’s emerging: There’s a growing trend in experiential retail—the idea that people don’t just go to stores to buy things anymore; they go for the experience.
This includes entertainment, dining, fitness centers, or unique in-store experiences that can’t be replicated online.
Some malls are transforming into lifestyle centers with more focus on experiences like movie theaters, gyms, and even concert venues.
Example: REITs like Tanger Factory Outlet Centers focus on outlets and lifestyle centers, where people shop for deals but also spend time eating out or catching a show.
E-Commerce Integration: Omnichannel Retail
Adapting to online: Some retailers have shifted toward an omnichannel model, blending online and offline experiences.
You might order something online but pick it up at a local store (BOPIS: Buy Online, Pick Up In Store). REITs that own properties equipped for these hybrid models—like curbside pickups or last-mile distribution hubs—are seeing better demand.
Example: Regency Centers focuses on retail centers that offer a mix of grocery, dining, and essential retail but are also well-positioned for retailers looking to implement omnichannel strategies.
In 2024, What’s Hot in Retail REITs?
- Grocery-anchored centers: Consistent performers, as grocery stores are recession-resistant.
- Discount retailers and essential services: Places like Target, Costco, and dollar stores are doing well, as people still prioritize value shopping in tough economic times.
- Experiential retail: Slowly gaining ground as people seek more experiences in physical spaces.
- Omnichannel hubs: Properties set up to handle online-offline retail strategies.
What to Watch Out For
- Traditional malls: Still struggling and not a growth area unless they’ve been reimagined.
- Shifting retail behavior: As people shop online more, demand for traditional retail space continues to decline. Retail REITs that aren’t adapting will likely see declining performance.
1. Residential REITs
Residential REITs invest in apartment buildings, single-family rental homes, and manufactured housing communities. These properties provide housing solutions to various demographics, including urban dwellers, suburban families, and retirees.
People are still moving to the suburbs, and the single-family rental (SFR) market is booming. Homeownership feels out of reach for many, especially millennials and Gen Z, so renting single-family homes in suburban areas is a huge trend. The pandemic jump-started this, but it’s sticking around in 2024.
Key Drivers:
- Population Growth: Increasing population and urbanization drive demand for rental housing.
- Affordability Issues: High home prices and mortgage rates push more people towards renting.
- Stable Income: Residential REITs often benefit from stable occupancy rates and predictable rental income.
Top Residential REITs:
- Equity Residential (EQR)
- Invitation Homes
- AvalonBay Communities (AVB)
- American Homes 4 Rent (AMH)
2. Industrial REITs
Industrial REITs own and manage warehouses, distribution centers, and logistics facilities. These properties are essential for the storage and distribution of goods.
The e-commerce boom isn’t slowing down. Even after the pandemic, online shopping keeps growing, and the need for warehouses and logistics centers is exploding. Companies are still expanding their supply chains, and same-day or next-day delivery is becoming the norm. That means industrial REITs are critical infrastructure.
Key Drivers:
- E-Commerce Growth: The rise of online shopping increases the need for warehouse space.
- Supply Chain Optimization: Companies seek to streamline supply chains, boosting demand for logistics facilities.
- Stable Demand: Industrial properties often have long-term leases with stable tenants.
Top Industrial REITs:
- Prologis (PLD)
- Duke Realty Corporation (DRE)
- STAG Industrial (STAG)
3. Retail REITs
Overview: Retail REITs invest in shopping centers, malls, and freestanding retail properties. These properties vary from large regional malls to smaller neighborhood shopping centers.
Key Drivers:
- Consumer Spending: Economic growth and consumer confidence drive retail sales.
- Omni-Channel Retailing: Physical stores complement online sales, supporting retail real estate.
- Location Importance: Prime locations attract high foot traffic and quality tenants.
Top Retail REITs:
- Simon Property Group (SPG)
- Realty Income Corporation (O)
- Kimco Realty Corporation (KIM)
4. Office REITs
Overview: Office REITs own and manage office buildings, providing spaces for businesses and professional services.
Key Drivers:
- Economic Growth: Business expansion and job creation drive demand for office space.
- Urbanization: Cities with growing populations and business hubs attract office tenants.
- Class A Properties: High-quality, well-located office properties tend to have strong demand.
Top Office REITs:
- Boston Properties (BXP)
- Alexandria Real Estate Equities (ARE)
- SL Green Realty Corp. (SLG)
5. Healthcare REITs
Healthcare REITs invest in properties such as hospitals, medical offices, senior living facilities, and skilled nursing centers. These properties cater to the healthcare needs of the population.
The aging Baby Boomer generation is driving demand for senior living facilities and specialized healthcare properties. Post-pandemic, there’s a rebound in medical offices and assisted living, and this sector benefits from long-term demographic trends.
Key Drivers:
- Aging Population: An increasing elderly population drives demand for healthcare facilities.
- Healthcare Spending: Rising healthcare expenditures support the growth of healthcare real estate.
- Long-Term Leases: Healthcare properties often have long-term leases with stable tenants.
Top Healthcare REITs:
- Welltower (WELL)
- Ventas (VTR)
- Healthpeak Properties (PEAK)
6. Data Center REITs
Data center REITs own and operate facilities that house servers and other IT infrastructure. These properties are essential for data storage, processing, and cloud computing.
Everything’s in the cloud—streaming, AI, remote work, you name it. Tech giants like Amazon, Google, and Microsoft need massive data storage, and with the rise of AI and more businesses going digital, data centers are only getting more valuable. These REITs are the digital landlords of the future.
Key Drivers:
- Digital Transformation: The shift to digital business models increases demand for data storage.
- Cloud Computing: Growth in cloud services and online applications boosts the need for data centers.
- High-Tech Tenants: Data centers attract stable, high-credit tenants such as tech companies and financial institutions.
Top Data Center REITs:
- Equinix (EQIX)
- Digital Realty Trust (DLR)
- CyrusOne (CONE)
7. Specialized REITs
Specialized REITs invest in niche property types such as cell towers, self-storage, and infrastructure. These REITs focus on unique real estate sectors with specific demand drivers.
More people moving around, downsizing, and businesses needing extra space have boosted self-storage demand. People are buying more but keeping less at home, and remote work has only increased this trend.
Key Drivers:
- Niche Demand: Specialized REITs cater to specific needs, such as telecommunications or self-storage.
- Innovation: Technological advancements drive growth in sectors like cell towers and data infrastructure.
- Resilience: Many specialized REITs benefit from stable demand and long-term leases.
Top Specialized REITs:
- American Tower Corporation (AMT) – Cell Towers
- Public Storage (PSA) – Self-Storage
- Crown Castle International (CCI) – Telecommunications Infrastructure
- Extra Space Storage
Don’t just look at “macro trends”—that’s too broad. Instead, ask yourself: Where is the disruption happening?
For example, industrial REITs are riding the wave of e-commerce and supply chain reinvention. Look at Amazon building fulfillment centers and tech companies needing cloud storage. That’s for the future.
If you see large pension funds, sovereign wealth funds, or big-time institutional investors quietly accumulating positions in a specific REIT sector, that’s a clue. They don’t make moves without serious research and deep insights. You can track this through SEC filings or fund reports.
Where most people drop the ball?
They fail to study the people running the REIT.
Winners have management teams that are forward-thinking, not just managing buildings. They’re doing things like repositioning assets, signing big long-term leases with reliable tenants, or expanding aggressively into high-growth areas.
Dig into quarterly earnings calls—are they talking about expansion into key markets? Signing deals with companies that will still be here in 20 years? This will tell you if they’re planning for the future or just coasting.
Investors who perpetually make losses don’t look into the REIT’s debt.
If the REITs are locked into long-term, low-interest debt, they’re insulated from rising rates and can keep expanding even when others are struggling.
Winners have their financing sorted out for years to come, not just quarter to quarter. It’s a boring metric, but you win when markets tighten up.
A REIT that consistently increases dividends is signaling long-term earnings power. Look for REITs with a track record of raising payouts even during tough economic cycles. That shows resilience and strong tenant demand.
Don’t settle for just the percentage. Look at who’s occupying those spaces and for how long. Top REITs are signing leases with blue-chip tenants on multi-decade terms. For example, if a data center REIT locks in a 20-year contract with a tech giant, that’s money in the bank for two decades—recession-proof, too.
Forget the obvious macro stuff. Look at something like telemedicine and the increased need for healthcare-related infrastructure, or urban revitalization where certain REITs are buying up undervalued city properties as urban migration happens. These are niche, but if you catch them early, you’re ahead of the pack.
