REITs Report Strong Q2 Results Even as Interest Rates Weigh on Investor Sentiment
Real estate investment trusts (REITs) performed strongly in the second quarter of 2026 — led by impressive showings in the hospitality, industrial and office sectors — but the industry as a whole remains handicapped by high interest rates and a lack of investor confidence.
These are the conclusions from a new report by Hoya Capital, a private investment advisory and research company that specializes in the REIT space.
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Hoya Capital accumulated data from over 200 U.S. REITs and homebuilders which reported second-quarter earnings results in recent weeks, finding that 83 percent of publicly traded REITs raised full-year funds from operation (FFO) guidance — a proxy for cash flow — while just 4 percent lowered their outlooks.
“Overall, REIT earnings results were surprisingly strong and delivered one of the cleanest reporting periods in recent memory, with unusually broad guidance raises, improving property-level fundamentals, and relatively few outright disappointments,” wrote Hoya Capital.
The firm found that in the second quarter of 2026, national office leasing rose 16 percent year-over-year to 62.4 million square feet, buoyed by strong earnings by office giants SL Green Realty and BXP. At the same time, retail occupancy has nearly returned to pre-pandemic levels, and the industrial sector rode the data center development wave.
“Higher-for-longer interest rates have been in place for a while now and REITs are finding ways to operate in a very volatile environment, whether that’s raising billions in capital or engaging in mergers and acquisitions or portfolio sales,” said David Auerbach, chief investment officer at Hoya Capital.
Despite the good news, high interest rates are truly beginning to damper investor sentiment toward REITs as a whole, especially over the last month.
Hoya Capital found that from July 12 through Aug. 11, the Equity REIT Index, a comprehensive measure of publicly traded REITs, declined 0.7 percent, while the S&P 500 gained nearly 4 percent. On the whole, the Equity REIT Index is up 11.6 percent on the year (and up 7.5 percent compared to 2025), while the S&P 500 is up 13.6 percent on the year (but down 2.6 percent compared to 2025).
“Regardless of stock price performance, the results have helped further reframe the REIT narrative after several years in which higher rates, net-asset-value discounts, and balance-sheet concerns dominated investor attention,” wrote Hoya.
Auerbach said that REITs began the year with positive investor sentiment — as the FTSE NAREIT U.S. Equity Index posted positive returns of 3.8 percent at the close of the first quarter — while the Dow Jones Industrial Average fell 3.6 percent and the S&P 500 declined 4.6 percent. But investors aren’t buying the industry anymore.
“Things were great, and then all of a sudden, for no reason, it was ‘everyone off real estate,’ and we were sold off,” Auerbach said. “Yes, the 10-Year Treasury is higher, but what gets swept under the rug is it’s a pretty good, kick-ass earning season for the REITs.”
The 10-Year Treasury has sat around 4.7 percent for the better part of August, its highest level in 18 months, while the 30-Year Treasury is now past 5.2 percent, its highest mark in nearly 20 years.
“Investor sentiment is down because of interest rate concerns and the rising 10-Year and 30-Year Treasury environment,” said Auerbach. “This is rate-driven and not fundamentals-driven. There’s no other way to frame it. “
Good and bad performance
Hospitality was the big winner in the second quarter of 2026.
Hoya Capital found that 10 hospitality REITs reported increases in their full-year FFO outlook that lifted average expected 2026 FFO growth to 10.6 percent from initial projections of 6.7 percent. Demand from urban, resort and business travelers supported much of the positive cash flow.
On the whole, hospitality and hotel REITs are up 34.3 percent in 2026 and are the second best-performing REIT asset class in 2026 after data centers.
“Hotels have been under pressure since coming out of COVID, and now we’re starting to see signs that we’re moving past the COVID lows,” said Auerbach. “Their convention business is picking up, and in various segments, from luxury to select service, the performance is picking up, with the World Cup tourism, obviously, bringing a bit of a boost as well.”
Another strong sector in the second quarter was industrial, with industrial REITs reporting FFO growth of 4.4 percent and increases to same-store net-operating-income expectations of 3.9 percent, per Hoya.
Industrial giant Prologis reported a nearly 12 percent jump in FFO in the second quarter as it financed an acquisition of European rival Segro, while Rexford reported that it planned to sell $2 billion of assets after reporting a $507 million second-quarter loss. On Tuesday, Rexford made good on its word when it sold an industrial portfolio to EQT Real Estate for $1.2 billion.
Auerbach said the industrial sector as a whole is likely to be helped in future quarters by data center performance as development booms.
Link Logistics recently reported that every gigawatt of data center construction creates 2 million square feet of industrial real estate demand, due to the close relationship between the functions of the two asset classes, particularly last-mile industrial.
“This is a sector that’s not losing any steam right now,” he said. “There’s a lot of stuff going on in that space.”
In a surprise move, Hoya Capital also characterized office REITs as a second-quarter winner.
Cushman & Wakefield reported that the national four-quarter rolling absorption total hit 14.3 million square feet in the second quarter of 2026, the metric’s strongest reading since 2020, and the seventh consecutive quarter of improvement.
The positive office forecast is led by activity in New York City, America’s largest office market.
Colliers found that in the second quarter, 11.02 million square feet of office leases were signed in Manhattan, a 31 percent increase above the 10-year average.
SL Green, New York’s largest office landlord, reported revenue increases of 9 percent in the second quarter of 2026 and an occupancy rate of 94.7 percent, a small increase from the prior quarter.
BXP, the country’s largest Class A office owner, reported revenue increases of 3.1 percent in the quarter and 1.8 million square feet of leasing across 106 transactions.
“Office has been the biggest surprise,” said Auerbach. “Everyone says that office is dead, but the leasing numbers speak for themselves. BXP, SL Green — all these guys had massive quarters of leasing.”
Not every sector performed well, however. America’s housing crisis, along with high interest rates, appears to be weighing down fundamentals across the residential sector in the REIT space.
Hoya Capital found that expected 2026 FFO growth among apartment REITs will drop 1.9 percent, mainly due to elevated completions working against rent projections in high-supply Sun Belt markets.
America’s two largest U.S. apartment REITs, Equity Residential and AvalonBay Communities, announced their merger during the second quarter, but both firms saw minimal changes in their stock prices following news of the announcement.
Auerbach argued that too much supply has depressed rents, and thus investment returns, but that the fundamentals remain strong.
“We feel that the softness is lifting, rents are starting to turn,” said Auerbach. “Fundementals are improving, though year-over-year numbers might be down, but quarter-over-quarter numbers are actually going up. There’s reason for optimism there as well.”
Brian Pascus can be reached at bpascus@commericalobserver.com.