REITs may be worth another look in 2026, advisors say

Advisors say publicly traded REITs are worth reconsidering in 2026 after a weak 2025.

Last year was rough for the S&P 500 real estate sector, as well as the Dow Jones Select REIT index. Both benchmarks finished off just under 1 percentage point compared to a 16% return for the great S&P 500.

Nevertheless, wealth managers like Aaron Leak, founder of ECL Private Wealth Management believes REITs are worth another look in 2026, but with “much greater selectivity.” In his view, last year exposed leverage, poor balance sheets, and business models that relied too heavily on easy capital, while higher quality REITs with durable cash flows held up fairly well with potential for future success.

“We’re beginning to see improvement in areas like industrial real estate, select multifamily markets, and certain alternative sectors such as data centers. Industrial remains supported by long term logistics demand, and multifamily is benefiting from easing supply pressure in most markets,” Leak said.

Traditional office, however, continues to face structural challenges tied to remote work and refinancing risk, while parts of retail and hospitality remain highly dependent on asset quality and location, according to Leak.

READ MORE: Alternative investments like REITs continue to play a growing role in client portfolios and it's an area of expertise recognized at the InvestmentNews Awards 2026 in the Advisor of the Year – Alternative Investments category. Nominations are open and all the details for the event, which will be held at the Edison Ballroom in New York, can be found here.

Meanwhile, Becky Lightman, founder of Lightman Capital, feels there's still uncertainty on how much office space will be used on an ongoing basis so REITs with a substantial allocation to office will continue to face headwinds. In her opinion, multifamily has also been hit hard, but may improve in 2026 under strong discerning operators who have not paid high prices for properties and have selectively entered the space.

“REITs continued to offer investors tax advantaged income so I am a fan of having some real estate investment exposure—they also can be a valuable inflation hedge,” Lightman said.

Elsewhere, David Abella, director of investments at GoalVest, says office, multi-family, and industrial all struggled in 2025, but are already starting to show some improvement.  

“Within offices, some central business districts, including Manhattan, have been much stronger. However, some office regions are still struggling, so sticking to the stronger central business areas can help to outperform,” Abella said.

Moving on, Dr. Preston D. Cherry, founder of Concurrent Wealth, recommends re-examining REITs in 2026, but “not broadly re-embracing” them.

“The weak performance in 2025 was driven by higher rates, refinancing pressure, and structural change, not a temporary dip in sentiment. The question now is which property types can still deliver durable cash flow without balance-sheet risk,” Cherry said.

Emphasized Cherry: “Where REITs sit in the portfolio matters. Income-producing REITs are often best held in tax-advantaged accounts, where distributions aren’t eroded by current taxes. Asset location is as important as asset selection.”

TIPS FOR PICKING THE RIGHT REIT

Location, location, location, of course, matters when deciding whether to purchase a real estate-based asset. But advisors say there are other metrics to watch when considering which REITs to buy or sell.

ECL’s Leak, for instance, says his focus in 2026 will be less on predicting interest rates and more on refinancing risk and balance sheet strength. The key question, Leak says, is whether a REIT can manage upcoming debt maturities without diluting shareholder value.

“We are more constructive on REITs with long dated, fixed rate debt and conservative leverage, and more cautious on those facing near term refinancing or ongoing reliance on capital markets. From an evaluation standpoint, cash flow stability and balance sheet quality matter more than headline yield,” Leak said.

For her part, Lightman will be keeping an eye on the Federal Reserve for clues on the reliability of REIT returns.

“Interest rate cuts would benefit the entire industry enormously, and I think you’ll see cash flows into the space if the market gets clear signals that the rates might go down. Unfortunately, that’s not necessarily our current environment, but as the Fed regime changes, the odds are greater for cuts, but it’s something we will be monitoring closely before going more heavily into REITs,” Lightman said.

Abella believes the rate environment has significantly improved from the past few years with some expectation of further rate cuts, especially if the economy looks uncertain. In this case, the rate sensitivity of REITs is a potential benefit for both income investors and total return investors.

“We look at cash flow as the most important measure along with balance sheet strength for individual names.  For the broader sector, we look at cap rate and interest rate trends. We feel that REITs can recover in 2026, but there are still pockets of distress and overleverage in the sector, so the REIT sector is likely to have a relatively wide dispersion of returns,” Abella said.

Finally, Cherry says he’s focused on cash-flow durability, debt maturity schedules, cap-rate trends relative to financing costs, and tenant quality. In his view, high yields alone are not enough.

“Sustainable income matters more than headline numbers. After a down cycle, investors tend to either chase yield or avoid the asset class entirely. Neither approach works. Thoughtful REIT allocations come from understanding how the asset fits the plan, not reacting to last year’s returns,” Cherry said.

Nominations are now open for the 2026 InvestmentNews Awards to be held at the Edison Ballroom in New York. For more details, visit the official site here.