The Case for REITs: Undervalued Assets and Resilient Growth in a Volatile Market

The real estate investment trust (REIT) market has navigated a turbulent 2025 with remarkable resilience, despite macroeconomic headwinds and sector-specific volatility. While global trade tensions and interest rate uncertainty have weighed on broader equity markets, REITs have maintained a compelling value proposition for long-term investors. Current valuation metrics, sector divergence, and structural growth drivers suggest that undervalued REITs-particularly in office, hotel, and industrial/logistics-present high-conviction entry opportunities.

Resilience Amid Volatility: Structural Strength as a Foundation

REITs have demonstrated robustness in 2025, supported by strong balance sheets and global diversification. According to a report by Nareit, the FTSE Nareit All Equity REITs Index returned 1.8% year-to-date through June 30, 2025, outperforming many traditional equity benchmarks amid trade-related uncertainties. This resilience is underpinned by REITs' access to capital markets and their ability to adapt to shifting demand patterns. For instance, telecom and data center REITs proved more resilient during April's tariff announcements, while industrial REITs benefited from sustained e-commerce growth.

J.P. Morgan Research further reinforces this optimism, projecting REIT earnings growth to remain around 3% in 2025 before accelerating to nearly 6% in 2026. The firm attributes this trajectory to improving capital markets and external growth opportunities, particularly in sectors with favorable long-term fundamentals.

Undervaluation Metrics: A Window for Strategic Entry

Despite their resilience, REITs have faced significant volatility in the second half of 2025. Data from The State of REITs (November 2025) reveals that the sector experienced an average negative total return of -4.03% in October alone, with small-cap REITs declining by -5.05%. This underperformance has created compelling entry points, particularly in sectors trading at substantial discounts to net asset value (NAV).

As of October 2025, the average NAV discount for REITs widened to -17.39%, with office and hotel sectors trading at -12.74% and -10.58%, respectively. These discounts reflect temporary market pessimism rather than intrinsic weakness, as REITs' strong operational performance and asset quality remain intact. For example, U.S. REITs traded at a -2.79x earnings multiple discount compared to U.S. stocks in Q1 2025-a historical precursor to outperformance.

Valuation metrics also highlight divergent sector dynamics. While data centers and healthcare REITs traded at elevated P/FFO (2026Y) multiples of 14.5x and 16.2x, respectively, office and infrastructure REITs remained undervalued at 13.5x and 12.8x. This divergence underscores the potential for re-rating in sectors where fundamentals are improving but market sentiment lags.

Sector Opportunities: Focusing on High-Conviction Plays

The current market environment favors REITs in sectors with structural growth drivers. Office REITs, for instance, trade at a significant NAV discount despite stabilizing demand from hybrid work models and urban revitalization efforts. Similarly, hotel REITs are poised to benefit from pent-up travel demand and rising occupancy rates, yet remain undervalued relative to their 2026 earnings potential.

Emerging sectors like data centers and healthcare offer dual advantages of defensive income and growth. Data centers, driven by AI and cloud computing, have traded at high multiples (14.5x P/FFO) due to their critical role in the digital economy. Meanwhile, healthcare REITs have outperformed the sector, posting a year-to-date gain of +19.74% as aging demographics and healthcare infrastructure needs drive demand.

Geographically, European and Asian REITs have outperformed North American peers, returning 24.6% and 14.7% by mid-2025, respectively. This outperformance reflects stronger capital flows and more favorable regulatory environments in these regions, offering diversification benefits for global investors.

Conclusion: A Case for Long-Term Conviction

The REIT market's current undervaluation, coupled with sector-specific growth catalysts, presents a compelling case for long-term investors. While short-term volatility persists, historical patterns suggest that REITs trading at NAV discounts often outperform as market sentiment normalizes. With a projected 2.8% compound annual growth rate through 2027, and external growth opportunities expanding as capital markets stabilize as noted in the J.P. Morgan outlook, now is a strategic time to consider high-conviction entry into undervalued REITs.

For investors seeking income, diversification, and capital appreciation, the REIT sector offers a rare combination of resilience and value-a testament to its enduring appeal in an evolving market landscape.