After years of heightened inflation and aggressive rate hikes, the global picture is beginning to shift. Across Europe and parts of Asia, inflation has cooled sharply, with policymakers now debating how soon interest rates can be eased. In the United States, by contrast, progress has been slower—headline inflation has steadied but remains above target, keeping central bankers cautious. Add to this the risks of renewed cost pressures from tariffs and supply chains, and the outlook becomes less clear-cut.
For investors in listed property, this uneven backdrop matters. Real estate investment trusts (REITs) are especially sensitive to inflation and interest rate cycles, which influence both the cost of borrowing and the relative appeal of property yields. Today’s environment is not one of simple direction but of transition: global REIT markets are moving from a period of strain into a phase where stabilisation—and selective opportunity—may start to emerge.
Inflation has been the defining pressure point for global markets in recent years. Higher prices for everything from energy to construction materials squeezed operating costs and weighed heavily on valuations, particularly for property companies that rely on predictable cash flows. As inflation surged, central banks responded with rapid rate hikes, which in turn pushed borrowing costs for REITs to levels not seen in over a decade.
That cycle is now showing signs of easing—though not evenly across the globe. In the Eurozone, inflation has cooled back towards the European Central Bank’s 2% target, offering relief to property owners who faced sharp utility and wage increases. In China and parts of Asia, inflation has remained muted for longer, even flirting with deflation in some cases, which has allowed interest rates to stay comparatively low. By contrast, the United States continues to grapple with stickier price pressures. Headline inflation has stabilised, but core measures remain above the Federal Reserve’s comfort zone, delaying any immediate pivot to lower rates.
For REITs, this divergence matters. Lower inflation translates into steadier operating expenses, healthier margins, and, over time, more predictable rental growth. It also shapes investor expectations: when inflation cools, the relative attractiveness of REIT dividends improves against other income options. Yet the mixed global picture means opportunities are not uniform. While some markets are already benefiting from disinflation, others remain constrained by higher costs and policy uncertainty.
In short, inflation’s retreat is easing one of the heaviest headwinds for listed property—but the pace and depth of that relief vary sharply by region. For investors, the task is not just to recognise the shift, but to understand where the balance of risk and recovery is most favourable.
If inflation has been one half of the story, interest rates are the other. Because REITs own real assets financed with debt, the level of interest rates has a direct impact on their costs and valuations. When central banks raise rates, borrowing becomes more expensive, refinancing risks grow, and investors often demand higher yields to compensate—putting downward pressure on REIT share prices. When rates fall, the opposite tends to occur: financing costs ease, valuations recover, and demand for income-generating assets like REITs strengthens.
This link often leads investors to ask some familiar questions:
How do interest rates affect REITs?
Higher rates typically reduce REIT returns in the short term by lifting borrowing costs and lowering relative yield appeal. Lower rates, in turn, support margins and attract more capital back into listed property.
What happens to REITs when interest rates go down?
Historically, REITs have rallied as rates ease, because dividends look more attractive versus bonds and cash, while cheaper borrowing supports growth strategies.
Do REITs do well when interest rates fall?
Yes—falling rates tend to create a tailwind. However, the scale of the benefit depends on the broader economic context. If falling rates reflect a deep recession, property fundamentals may still be challenged.
For investors, the key is less about whether rates are high or low, and more about the direction of travel. Stabilisation or even modest cuts from today’s elevated levels could provide a much-needed reset for listed property, especially in markets where valuations have already adjusted sharply.
REITs are often described as “interest rate sensitive,” but what that really means depends on the direction of policy and the strength of the economy around it.
When interest rates are rising, REITs typically face headwinds. Borrowing becomes more expensive, making it costlier to refinance debt or fund new developments. Investors also tend to rotate into government bonds, which suddenly offer higher yields with less risk. This combination can pressure REIT share prices even if the underlying properties continue generating stable rental income.
By contrast, when interest rates fall or stabilise, the backdrop shifts. Lower borrowing costs relieve financial pressure, while income-seeking investors find REIT yields appealing again. In these phases, listed property has historically delivered strong rebounds—especially when valuations are already trading at discounts to net asset value.
For investors, the lesson is that REIT performance is less about the absolute level of interest rates, and more about the turning points. Markets often reprice REITs ahead of central bank moves, meaning the greatest opportunities appear when sentiment shifts from tightening to stabilisation.
The impact of inflation and interest rates is not uniform. Different regions are at different stages of the cycle, which shapes the opportunity set for listed property investors.
In the United States, REIT valuations have already adjusted to reflect higher borrowing costs. While inflation has steadied, it remains above the Federal Reserve’s 2% target, keeping rate cuts on hold. This has left U.S. REITs trading at discounts in many sectors, but the timing of recovery hinges on policy clarity.
Across the Eurozone, the backdrop is more supportive. Inflation has fallen closer to the European Central Bank’s target, fuelling expectations of gradual rate relief. For European REITs, the easing of cost pressures alongside the prospect of lower financing costs is beginning to reset investor confidence.
In Asia, the picture is more mixed. Japan continues to maintain ultra-low rates, which supports its domestic REIT market, while China faces subdued inflation and even deflationary risk—conditions that limit rental growth but keep funding costs low. Singapore’s REIT market, a bellwether for Asia, has seen sharp swings in line with global bond yields, but remains underpinned by investor demand for stable, income-generating property.
Together, these regional differences underline that global REITs are not moving in lockstep. Instead, the environment is fragmented—some markets are already positioned for recovery, while others remain constrained by monetary policy or slower disinflation. For globally minded investors, this divergence offers both risk and opportunity, depending on where exposure is placed.
While inflation and interest rates dominate the headlines, they are only part of the story. Real estate investment trusts are ultimately grounded in the long-term demand for space—be it offices, logistics hubs, data centres, or healthcare facilities. These structural drivers often outlast the ups and downs of monetary cycles.
Take logistics and warehousing: the global shift toward e-commerce continues to fuel demand for modern, well-located distribution centres. Similarly, data centres have become critical infrastructure for cloud computing and artificial intelligence, creating a new category of income-producing property. Healthcare and senior housing are expanding as populations age, offering steady cash flows less correlated with the broader economy.
These sectors highlight an important point: even in periods of high rates or elevated inflation, the underlying need for these assets does not disappear. Instead, the cycle influences timing and valuations, while the structural story remains intact.
For investors, this means REITs are not just about riding interest rate trends—they are about accessing essential parts of the modern economy in a liquid, listed format. Over the long term, these fundamentals are what sustain income and growth, regardless of where inflation or central banks move next.
Cycles don’t move in sync—and neither should portfolios. As a dedicated manager in global listed property, Reitway’s focus is on reading the macro context without losing sight of what ultimately drives returns: durable cash flows from quality real estate.
What that looks like in practice:
For investors asking “where are we now?”, the answer is straightforward: we are in a transition. Inflation is cooling unevenly, interest rates are edging toward stabilisation, and listed property has already absorbed much of the repricing pain. In this phase, selectivity matters more than bold bets—and that is where Reitway Global’s dedicated, globally aware approach can help investors identify the opportunities worth pursuing.
Discover how Reitway Global can help you position for opportunity in listed property. Contact us to learn more about our global REIT strategies and how they can fit into your investment portfolio.
Get the latest blog updates via email
Your nickname:
Email address:
Subscribe