Cohen & Steers' Index Rebalancing and the Shifting Landscape of REIT Investing

Cohen & Steers' recent rebalancing of its Realty Majors Portfolio Index (RMP) and Global Realty Majors Portfolio Index (GRM) has sent a clear signal to the real estate investment community: the firm is pivoting toward sectors poised to outperform in a post-pandemic, macroeconomic transition. By adding Ventas Inc. (VTR) and EastGroup Properties Inc. (EGP) while removing Rexford Industrial Realty (REXR) and Alexandria Real Estate Equities (ARE), the firm is aligning its indices with the long-term tailwinds of healthcare real estate and logistics-driven industrial assets. For active investors, this shift is not merely a technical adjustment but a strategic recalibration that reflects evolving demand patterns and capital allocation priorities.

The Healthcare Sector: A Demographic-Driven Opportunity

Healthcare real estate, particularly senior housing and skilled nursing facilities, has emerged as a defensive asset class in 2025. With the U.S. population aged 80+ growing at three times the rate of the 2010s, demand for healthcare infrastructure is accelerating. Ventas' inclusion in the RMP and GRM underscores this trend. The company's portfolio of senior housing and medical office buildings (MOBs) is now trading at a 20% discount to replacement costs, a metric that highlights its value proposition in a market where new construction is constrained by high financing and material costs.

Analysts note that healthcare REITs have outperformed the broader REIT sector in 2025, with returns of 8.5% as of May 28. This outperformance is driven by two key factors:
1. Supply-Demand Imbalance: Senior housing supply growth has slowed to 2% annually, while demand is projected to grow at 5% through 2030.
2. Operational Resilience: REITs like Ventas are leveraging technology to optimize revenue management and reduce costs, bridging the gap between senior housing and multifamily assets.

For active investors, healthcare REITs offer a dual benefit: income generation through stable lease structures and capital appreciation from asset repositioning. However, caution is warranted in subsectors like life science real estate, where vacancy rates exceed 27% in key clusters (e.g., Boston, San Francisco) due to NIH funding cuts and regulatory uncertainty.

Industrial Real Estate: Navigating a Transitional Phase

The industrial sector, meanwhile, is in a period of recalibration. Cohen & Steers' removal of Rexford Industrial and Alexandria Real Estate from its indices reflects a shift toward REITs with exposure to high-growth logistics and e-commerce infrastructure. EastGroup Properties, now added to the RMP and GRM, owns infill industrial properties in urban markets with limited land availability, a structural advantage in a market where small-bay industrial space remains in high demand despite overall vacancy rates rising to 7.4% in Q2 2025.

The industrial sector's challenges are well-documented:
- Vacancy Rates: Large logistics buildings face vacancies exceeding 10% in some markets, while small-bay space remains tight.
- Construction Pipeline: The industrial development pipeline is at an 11-year low, with starts constrained by high interest rates and tariffs on materials.

Yet, forward-looking catalysts suggest a potential turnaround by 2026. The “Big Beautiful Bill” (OBBBA), which allows 100% expensing for manufacturing equipment and facilities, is expected to spur a wave of U.S. manufacturing investment. With $2.7 trillion in manufacturing commitments already announced in 2025, industrial REITs with strategic assets in urban infill locations are well-positioned to benefit from a near-term rebound in demand.

Strategic Implications for Active Investors

Cohen & Steers' index changes highlight a broader industry trend: the reallocation of capital toward sectors with structural growth drivers. For active investors, this means:
1. Sector Rotation: Overweighting healthcare and industrial REITs with strong balance sheets and disciplined capital allocation practices.
2. Subsector Diversification: Avoiding overexposure to life science real estate and focusing on senior housing, skilled nursing, and logistics-driven industrial assets.
3. Timing the Cycle: Positioning for a potential industrial bull market in 2026 by investing in REITs with high-barrier assets (e.g., EastGroup, Welltower).

Conclusion: Aligning with the New Normal

Cohen & Steers' rebalancing is a microcosm of the broader real estate market's evolution. As demographic shifts and technological innovation reshape demand, investors must adapt their strategies to capture value in sectors with durable growth trajectories. Healthcare and industrial real estate, while distinct in their drivers, share a common thread: resilience in the face of macroeconomic uncertainty. For those willing to navigate the nuances of these markets, the rewards could be substantial—but only for those who act with discipline and foresight.