REITs are down because the Federal Reserve’s 2022–2023 rate-hiking cycle left the sector with three overlapping problems that even the recent round of rate cuts hasn’t fully resolved: higher borrowing costs that squeeze growth and pull property values down, a massive wave of commercial mortgages maturing into a much more expensive credit environment, and structural declines in demand for office space and older retail that rate cuts can’t fix. Data center, industrial, and certain residential REITs have held up well, so the headline weakness masks a widening split between winners and losers inside the sector.
The Rate Hangover Is Still Working Through
The Fed raised rates from near zero in early 2022 to a peak of 5.25%–5.50% by mid-2023, held there for over a year, and has since cut six times to bring the federal funds rate down to 3.50%–3.75% as of March 2026.1Federal Reserve. Federal Reserve Issues FOMC Statement – March 2026 That’s real relief, but rates are still roughly 350 basis points above where many of today’s outstanding commercial real estate loans were originated.
REITs are heavy users of debt. They borrow to acquire properties, fund development, and refinance maturing loans. A deal that penciled at a 3% mortgage rate doesn’t pencil at 6%, so acquisition activity has slowed, portfolio growth has stalled, and funds from operations (the REIT equivalent of earnings per share) have grown more slowly than in the low-rate era.
Higher rates also drag property values down directly. When Treasury yields rise, investors demand a higher return on real estate to compete, which pushes capitalization rates up. Since a property’s value equals its net operating income divided by the cap rate, higher cap rates mean lower values, even when the building hasn’t lost a tenant. That decline creates a secondary problem: when a REIT’s share price falls below the per-share value of its properties, issuing new stock dilutes existing shareholders, effectively shutting off a key funding channel.
The Debt Maturity Wall
The single most concrete threat facing the sector is the volume of commercial real estate loans coming due. Roughly $929 billion in commercial and multifamily mortgages matured in 2024, followed by approximately $957 billion in 2025.2Mortgage Bankers Association. 20 Percent of Commercial and Multifamily Mortgage Balances Mature in 2025 Many of these loans were written when rates were near zero. Refinancing them means replacing cheap debt with much more expensive debt, and the added interest expense comes straight out of the cash a REIT has available to pay investors.
That matters because REITs are legally required to distribute at least 90% of their taxable income as dividends to keep their tax-advantaged status.3Justia Law. 26 US Code 857 – Taxation of Real Estate Investment Trusts When cash flow shrinks, dividends are directly at risk. When the market sees a REIT with a wall of maturities ahead, it prices in the expected hit to those distributions well before management announces anything, which shows up as a lower share price today.
Credit Tightness and Rising Delinquencies
Even REITs that can afford higher rates face a separate obstacle: lenders may not want to extend the loan at all. Regional banks, historically major commercial real estate lenders, pulled back sharply after the 2023 banking stress and have been slow to re-engage. Tighter underwriting means lower loan-to-value ratios, which means the borrower has to bring more equity to close the refinancing gap. If that equity isn’t available, the property may have to be sold at a discount to repay the maturing loan.
Delinquency data confirms the pressure. The overall CMBS delinquency rate hit 7.55% in March 2026, with office and lodging leading the deterioration. Each distressed sale resets comparable values downward, tightens lender appetite further, and puts additional pressure on the next borrower trying to refinance.
Structural Problems in Office and Older Retail
Interest rates are cyclical. Certain problems in the sector are not.
Office
Remote and hybrid work have permanently changed how companies use office space. The national office vacancy rate sat at roughly 17.6% in early 2026, well above pre-pandemic norms. Corporate tenants are renewing for less square footage at lower effective rents, and some are simply walking away at lease-end.
The pain is uneven. Newer Class A towers in prime locations still attract tenants, sometimes at premium rents. Older Class B and C buildings, especially in suburban markets or with dated infrastructure, face vacancy rates that make them uneconomic at any rent, and the market is increasingly pricing them for demolition or conversion. A REIT holding trophy Manhattan towers and one holding 1980s suburban parks may share a sector label but face very different futures.
Retail
E-commerce continues to erode demand for traditional retail, though the story is more nuanced than a blanket “retail apocalypse.” Grocery-anchored shopping centers and open-air power centers with strong traffic drivers are doing well. Enclosed malls anchored by struggling department stores in low-growth markets are not. And even the winning properties require heavy capital spending to reposition space for experiential tenants, restaurants, or medical uses, which drains cash flow in the short term.
Sectors That Have Held Up
The selloff has never been uniform, and the divergence between sectors has widened. Data center REITs have been the standout, driven by demand for cloud and artificial intelligence workloads. Fund managers have been overweighting data centers relative to their index share, a clear signal of where institutional confidence sits.
Industrial REITs, which own warehouses and logistics facilities, have also held up thanks to continued e-commerce growth and supply chain reconfiguration. Single-family rental and manufactured housing REITs actually benefit from the same high mortgage rates that hurt other parts of the sector: when buying becomes unaffordable, more people rent.
So a headline showing REITs lagging the S&P 500 can obscure the fact that data center and industrial names are performing strongly while office and older retail drag the average down. The question “why are REITs down” gets very different answers depending on which REIT.
What NAV Discounts Are Telling You
One of the clearest signals of investor skepticism is the gap between REIT share prices and estimated net asset value (NAV), which is a bottom-up estimate of what a REIT’s properties would fetch if sold, minus liabilities. Historically public REITs traded near NAV. They’ve spent much of the past few years at double-digit discounts. As of early 2026 the average discount had narrowed to about 12%, down from nearly 16% a month earlier, but still substantial.
The discount reflects a credibility gap. Private real estate valuations feeding into NAV rely on appraisals and comparable transactions that update slowly. When rates move quickly, the market suspects reported NAVs haven’t caught up, and it prices the stock at what it thinks the properties are actually worth. The discount also bakes in expected future pain: refinancing costs not yet on the balance sheet, potential forced sales, and dividend cuts that seem likely for the most leveraged names.
Private and Non-Traded REITs: A Different Problem
Public REITs at least let you sell your shares on the open market, even at a loss. Private and non-traded REITs typically cap redemptions at around 5% of net assets per quarter, and when requests exceed that cap, investors are stuck.4Blackstone Real Estate Income Trust. Investor Services FAQs
That scenario has played out repeatedly since 2022. Several major non-traded REITs, including vehicles managed by Starwood and other large sponsors, have seen redemption requests consistently exceed quarterly limits. Starwood’s unmet redemptions alone have been estimated at nearly $1 billion, and more than $4.6 billion in investor capital was trapped behind withdrawal limits across private investment vehicles as of early 2026.
Gating creates its own feedback loop. When investors hear redemptions are being throttled, even those not planning to sell rush to submit requests, and the queue grows. The gates themselves feed skepticism about reported valuations: if the properties are really worth what the fund says, why can’t investors get their money out?
Where Things Stand in 2026
The sector entered 2026 showing signs of recovery. The FTSE Nareit All Equity REITs Index posted a roughly 7.6% total return through mid-March, rate cuts are helping at the margin, and the acute panic around bank failures and credit freezes has eased. The fundamental pressures haven’t fully resolved, though. The debt maturity wall continues to force difficult refinancing decisions, office vacancies remain elevated despite modest improvement, and private REIT liquidity problems persist.
The REITs best positioned from here are those with low leverage, properties in sectors with strong secular demand (data centers, logistics, housing), and manageable lease expirations. For everyone else, the workout still has a ways to go.