Reits rising rate environment
Why can REITs perform well in a gradually rising interest rate environment? Commercial real estate, and therefore REITs, can perform well during a period of modestly rising interest rates. An increase in interest rates often accompanies economic growth, employment gains and an increase in inflation—all of which tend to bode well for the owners of existing commercial real estate. In theory, a rise in interest rates will lead to an increase in borrowing costs, which impacts the profitability of REITs and their ability to make acquisitions. However, gradual rate increases are also often associated with improving economic growth, which indirectly boosts REITs’ earnings. Over the past 25 years the total return of REITs in rolling four-quarter periods was positive 87 percent of the time when interest rates were also rising, Nareit said.