By Paul R. La Monica

Real estate stocks are still beating the market this year. How much longer that will last is up for debate.

Investors have flocked to real estate investment trusts, or REITs, thanks in large part to their big dividends, which offer steady returns in a year where stability has been in short supply on Wall Street. The Real Estate Select Sector SPDR Real Estate Select Sector SPDR Fund is up more than 3% this year, versus a 0.5% gain for the S&P 500.

But the calculus is quickly changing. Now that President Donald Trump is showing more willingness to negotiate on trade deals, tariff fears are waning and the market has once again embraced risker stocks. REITs have lagged behind the rally in the S&P 500 during the past month. The REIT sector ETF is up just 1% since late April, compared with a 6% pop for the S&P 500.

This doesn't mean that investors should abandon all REITs. Analysts and fund managers still see compelling opportunities for both income-oriented investors craving dividends, as well as those who want steady earnings growth.

Matt Werner, managing director of REIT strategies with Chilton Capital Management, told Barron's that real estate stocks should benefit from the combination of healthy dividend yields and improving fundamentals as recession fears fade. Investors shouldn't worry too much about short-term economic gyrations because most REITs are negotiating deals with tenants that last several years, he said.

"There is a lot of revenue already baked in from leases. This is a predictable asset class that has lower risk," Werner said.

Werner likes a mix of REITs in underperforming sectors such as office real estate and industrial properties, as well as more dynamic growth areas like senior housing and cold storage for retailers.

Werner said he owns office REITs Highwoods Properties, Alexandria Real Estate, and BXP as well as the industrial REIT Rexford. These four pay dividends that yield in a a range of just under 5% to 7.5%.

In senior living, Werner has positions in American Healthcare REIT, which went public last year, in addition to rival Ventas. Those two yield around 3% and are growing rapidly as more Americans live longer.

Cold storage is another hot trend. The growth in e-commerce has fueled more demand for facilities to store refrigerated and frozen food and beverages. Werner is playing that with an investment in Americold Realty Trust, which pays a yield of 5.5%.

Another fund manager, Lamar Villere with Villere & Co., also is bullish on cold storage. He told Barron's he owns Lineage, which yields about 4.3%, and that he bought more of the stock during the early April post-Liberation Day market selloff.

Analysts at UBS also think investors should consider taking a little more risk, though not too much. "We remain most positive on the more defensive subsectors, but we are leaning into those with more offensive traits," the analysts said.

They recommend REITs in housing and retail, including Invitation Homes, which buys single-family houses for rent; apartment owner UDR; and NetSTREIT, which has top retailers like Dollar General, CVS and Home Depot as big tenants. The three stocks pay dividends yielding between 3.5% and 5.3%.

Piper Sandler analysts are bullish on retail too, particularly in light of renewed hopes that Trump tariffs, many of which the U.S. Court of International Trade struck down on Wednesday, could be pared back further.

"We think retailers now have a reprieve to make normal seasonal purchases," said the Piper Sandler analysts in a report Thursday. That should be good news for mall operator Simon Property Group, which yields more than 5%.

The Piper Sandler analysts added that many real estate companies also seem to be less and less concerned about a potential recession. They noted that many are negotiating higher rates to lease properties.

"If renters and businesses are willing to pay more for space in the future, that's a positive economic indicator. Clearly things can always change, but that tenants haven't altered their plans in apartments, office, and retail, speaks to tariff fear versus economic reality on the ground," the Piper Sandler analysts said.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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May 29, 2025 16:12 ET (20:12 GMT)

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