What Happens to REITs During a Recession: Performance Across Economic Downturns

Real estate investment trusts (REITs) are securities that let investors gain exposure to real estate companies without directly purchasing property. By regulatory requirement, at least 75% of a REIT’s assets must be invested in real estate, with 75% of income derived from real estate operations. In return for this structure, REITs must distribute at least 90% of their profits to shareholders as dividends.

When examining how REITs behave during economic downturns, the data reveals an interesting paradox: while they do decline during recessions, they often rebound faster than broader equity markets.

How REITs Actually Perform When Recession Strikes

Historical data shows that REITs have delivered impressive long-term returns. From 1972 through 2024, U.S. REITs generated average annual returns of 12.6%, according to Nareit and YCharts data—significantly outpacing the S&P 500’s 8% average return. However, the past five years tell a different story, with REITs averaging just 5.5% annually versus the S&P 500’s robust 15.3%.

But what specifically happens during a recession? Research from Neuberger Berman analyzing six economic cycles between 1991 and 2024 found that REITs lose an average of 17.6% during recessions. While this sounds steep, it’s important to contextualize: the S&P 500 suffered even greater declines, dropping more than 20% on average during the same periods.

Interestingly, REITs prove more resilient in the months before a recession hits. Edward Pierzak, Senior Vice President of Research at Nareit, notes that REITs delivered positive returns averaging 5.7% in the 12 months preceding the last six recessions. The real story, however, lies in what happens after: REITs posted average returns of 22.7% in the 12 months following those same recessions—a sharp turnaround that demonstrates why investors often view them as contrarian plays during market stress.

Why Interest Rate Cuts Drive REIT Recovery After Recessions

The key to understanding REIT behavior during economic cycles lies in interest rates. Commercial real estate values are extremely sensitive to interest rate movements. Cap rates—the capitalization rates that determine real estate valuations—move in tandem with interest rates. When central banks cut rates during recessions (which is standard practice), cap rates fall as well, which mechanically increases the value of real estate assets.

This relationship creates a powerful catalyst for REIT rebounds. The interest rate cuts that occur during recessions typically happen quickly, setting up REITs for rapid recovery. Additionally, because REITs trade on public markets, their prices adjust immediately to forward-looking expectations. Financial markets price in what companies will likely be worth in 12 to 18 months ahead, not just their current value. This forward-looking mechanism accelerates the recovery phase.

Which REIT Types Weather Recessions Best

Not all REITs respond equally to recession conditions. Investors can purchase REITs focused on specific real estate sectors: multifamily apartments, office buildings, hotels, industrial warehouses, data centers, cell towers, and other specialized properties.

According to Peter Zabierek, CEO and portfolio manager at Sugi Capital Management, recession resilience varies dramatically by sector. “Office and hotel REITs typically underperform during recessions,” Zabierek explains, “while data centers and cell tower REITs tend to outperform.” A 2025 analysis by Wide Moat Research confirmed these patterns, identifying data centers, healthcare facilities, and triple net lease properties as the most recession-resistant REIT categories. In contrast, hotel REITs, billboard properties, and mortgage loan REITs experience the steepest declines during downturns.

Key Takeaways for Investors Facing Recession Risk

The implications for investors are clear. First, REITs decline less severely than the broader stock market during recessions, providing a degree of portfolio stability. Second, if economic weakness appears on the horizon, healthcare and data center REITs offer particular downside protection. Finally, because REITs historically recover dramatically in the 12 months following recessions, they can represent compelling buying opportunities when markets hit their darkest moments. The combination of dividend income, asset value recovery, and strong post-recession performance makes REITs a distinct asset class worth understanding.