REITs Post 4.2% Return in December, Lagging S&P 500 for the Year

The FTSE/Nareit All REIT Index closed strong in December with a total return of 4.2%, more than doubling the S&P 500's performance. However, for the year, the REIT gauge posted a total return of 9.3%, trailing the S&P 500 by 270 basis points. Industrial REITs led the year with a 30.7% return, followed by single-family, data center, and lodging REITs.

The FTSE Nareit All REIT Index concluded the year's final month with a strong performance, registering a total return of 4.2% [1]. This figure surpassed the S&P 500's December performance of 0.7% [2]. However, the REIT gauge trailed the broader market index for the year, posting a total return of 9.3%, compared to the S&P 500's 12.0% return [1].

Industrial REITs emerged as the top performers in 2024, with a remarkable 30.7% return [1]. This sector's success was followed closely by single-family, data center, and lodging REITs, which returned 26.3%, 25.2%, and 23.1%, respectively [1].

Despite the strong performance of some REIT sectors, the year was not without its challenges. Lodging/resorts, diversified, and office REITs experienced the most significant declines, with returns of -3.0%, -4.9%, and -5.4%, respectively [1]. Specialty REITs, on the other hand, led the way in 2024 with a total return of 35.9% [1].

The FTSE Nareit Mortgage REITs Index, however, did not fare as well in December, with a total return of -4.3% [1]. The index was flat for the year, with a total return of 0.4% [1]. Home financing and commercial financing experienced similar declines in December, with returns of -3.0% and -4.3%, respectively [1].

The yield on the 10-year Treasury rose significantly during the second half of 2024, from 3.59% in September to 4.58% by year's end [1]. This rise in interest rates led to a decline in REIT performance, with the All Equity REITs index falling 8.9% while the Russell 1000 rose 5.1% during this period [1]. However, since October 2023, when the 10-year Treasury peaked at 4.98%, the All Equity REITs index has rebounded, returning 28.1% while the Russell 1000 is up 40.0% [1].

In conclusion, while REITs outperformed the S&P 500 in December, they trailed the broader market index for the year. Industrial REITs were the top performers, while lodging/resorts, diversified, and office REITs experienced the most significant declines. The rise in interest rates during the second half of 2024 led to a decline in REIT performance but did not deter their rebound in the final months of the year.

[1] https://www.reit.com/news/blog/market-commentary/reits-gain-49-2024-december-headwinds-trim-earlier-gains
[2] https://www.reuters.com/business/us/us-stocks-weekly-performance-2024-12-31/