The real estate investment trust (REIT) sector experienced a modest decline in September 2025, registering a negative average return of 0.73%. This setback further impacted the year-to-date performance, which now stands at -1.74%. The sector's performance lagged behind the broader market, as major indices such as the Dow Jones Industrial Average, S&P 500, and NASDAQ all recorded positive returns during the same period. This article delves into the specifics of REIT performance across various market capitalizations and property types, examines dividend trends, and provides an overview of current valuations, including premiums and discounts to Net Asset Value (NAV).
September 2025 brought a marginal dip for the REIT sector, with an average negative return of 0.73%. This extended the year-to-date losses for REITs to 1.74%. In contrast, the broader market indices, including the Dow Jones Industrial Average, S&P 500, and NASDAQ, all enjoyed positive returns, demonstrating a divergence in performance. The Vanguard Real Estate Index Fund ETF Shares (VNQ), a market-cap-weighted ETF, performed slightly better than the average REIT for the month and significantly outpaced it year-todate, highlighting the impact of market capitalization on returns within the sector.
An analysis of performance by market capitalization reveals minimal differences in September. Large-cap REITs recorded a negative return of 0.29%, outperforming micro-caps (-0.79%), small-caps (-0.83%), and mid-caps (-0.92%), all of which saw slightly larger declines. Over the first nine months of 2025, large-cap REITs maintained a lead over small-cap REITs by 216 basis points. The valuation spread between large-cap and small-cap REITs, based on 2026 FFO multiples, expanded as large-cap multiples contracted by 0.2 turns and small-cap multiples by 0.4 turns. Currently, investors are paying approximately 28.8% more for each dollar of FFO from large-cap REITs compared to small-cap REITs.
Looking at individual property types, a mere 27.8% of REIT categories achieved positive total returns in September. The performance range between the best and worst-performing property types was 10.69%. Data Centers (up 4.92%) and Office properties (up 3.11%) recorded the strongest gains, indicating robust demand in these segments. Conversely, Single Family Housing (down 5.77%) and Infrastructure (down 5.41%) were the weakest performers for the month.
Year-to-date, certain property types have faced significant challenges. Hotels (down 13.61%), Shopping Centers (down 10.74%), and Land (down 10.48%) have all experienced double-digit negative returns. Health Care REITs, however, have been a standout, with an average gain of 21.83%, more than double that of any other property type. The average P/FFO (2026Y) for the entire REIT sector increased from 13.8x to 14.1x in September, with 27.8% of property types showing multiple expansion and 72.2% experiencing contraction. Data Centers (24.6x), Land (22.6x), Manufactured Housing (17.2x), and Multifamily (17.1x) currently command the highest average multiples, while Hotels (7.2x) and Office (9.7x) are the only property types trading at single-digit FFO multiples.
Regarding individual securities, Office Properties Income Trust (OPI) saw the most significant gain in September, jumping 54.26%, despite considerable volatility. This surge occurred as OPI faced financial difficulties, including defaulting on interest payments and a NASDAQ delisting notice, leading to its trading on the over-the-counter market. In stark contrast, Wheeler Real Estate Investment Trust, Inc. (WHLR) continued its multi-year decline, dropping 29.27% in September and a staggering 99.73% year-to-date. In September, 37.42% of REITs posted positive total returns, though the sector's year-to-date return of -1.74% lagged significantly behind the 9.61% return observed in the first nine months of 2024.
Dividend yield remains a crucial factor for REIT investors. Many REITs are currently trading below their Net Asset Value (NAV), resulting in attractive dividend yields. While high yields can sometimes indicate higher risk, they can also present opportunities for investors willing to undertake due diligence. Five REITs announced dividend increases in September, including Millrose Properties, Inc. (MRP) and Phillips Edison & Company, Inc. (PECO), which recorded increases of 5.8% and 5.7%, respectively. In total, 58 REITs have raised their dividends in the first three quarters of 2025.
In terms of economic health, September marked the first month-over-month decrease in corporate bankruptcies since April. Although 2025 has seen a higher number of bankruptcies than any year since 2010, a potential Fed rate-cutting cycle could alleviate the debt burden for struggling businesses. The downward trajectory of interest rates is expected to provide some relief to borrowers, although the full extent of future rate reductions is yet to be determined.
Valuation analysis, particularly the REIT premium/discount to NAV, shows a strong positive correlation between market capitalization and price/FFO multiples. Large-cap REITs (average -3.79% discount) and mid-cap REITs (average -8.35% discount) are trading at single-digit discounts to consensus NAV. Small-cap REITs are trading at approximately three-quarters of their NAVs (average -23.52% discount), while micro-caps are trading at just under two-thirds of their NAVs (average -34.05% discount). This suggests that smaller-cap REITs may offer deeper value opportunities for investors.
Despite negative returns in July and September, the REIT sector managed a modest 2.7% gain in Q3 2025, largely due to a strong August. However, this trailed the S&P 500's impressive 8.1% gain for the same period. Over the past 12 months, REITs experienced a 4.0% loss, while the S&P 500 gained 17.6%. While Multifamily REITs faced difficulties, Malls, Healthcare, and Office REITs all performed well, surpassing the S&P 500. Acquisition targets like Plymouth Industrial REIT, Inc. (PLYM) and City Office REIT, Inc. (CIO) saw significant surges due to non-binding acquisition proposals, highlighting potential opportunities for investors to identify and capitalize on undervalued REITs.