REITs Fall 5.7% in September as 10-Year Yield Hits 5.27%

The FTSE Nareit All Equity REITs Index dropped 5.7% in September, according to Nareit’s monthly REIT commentary, as the 10-year Treasury yield climbed to 5.27%. The decline left listed real estate significantly behind the broader market, with the Russell 1000 slipping only 0.6% and the Dow Jones U.S. Total Stock Market losing 0.7% over the same period.

Nareit attributes the sector's underperformance to rising bond yields, which weigh on REITs more heavily than on the general stock market. The Federal Reserve raised the federal funds rate by 25 basis points to combat persistent inflation, driving the 10-year yield to a level Nareit says has not been seen in nearly 25 years. This stands in sharp contrast to the 4.18% yield recorded at the end of 2025.

Through September, the All Equity REITs Index returned 7.9% for the year, trailing the Dow Jones U.S. Total Stock Market at 12.6% and the Russell 1000 at 12.3%. The year-to-date shortfall widened following the September decline, marking a continued lag for listed real estate against major benchmarks.

Sector performance varied widely during the month. Lodging and resorts were the only group to post a gain, rising 0.7% in September. This sector leads all real estate categories with a year-to-date return of 37.6%, followed by data centers at 28.0% and specialty REITs at 23.4%. Most other groups posted losses, with telecommunications sliding 8.6% and gaming declining 8.5%. Health care fell 3.4%, and data centers dropped 3.8%. Timberland was the weakest group, falling 15.5%.

Mortgage REITs faced particularly sharp declines, with the Mortgage REITs Index dropping 13.7% in September. Home financing REITs fell 13.7%, and commercial financing REITs lost 13.8%, leaving the index down 12.4% for the year. Despite these losses, Mortgage REITs still carry a dividend yield of 15.68%, compared with 3.93% for All Equity REITs and 1.03% for the S&P 500.

Nareit notes that public REIT pricing often serves as an early indicator of how investors value commercial property when interest rates shift. The current yield environment is also creating stress for borrowers, a trend that has put lenders on alert. Mortgage REITs, which lend against and hold commercial real estate debt, are absorbing this pressure directly.

Investors are now watching whether yields will hold above 5% and whether the Federal Reserve signals further rate hikes. Lodging and data centers have emerged as relative winners, while rate-sensitive financing REITs face the most exposure if yields continue to climb.