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Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Rising interest rates can pressure REIT and real estate stock prices by increasing the return investors demand, making dividend yields less competitive with bonds, and raising borrowing costs. But the effect is not automatic: when rates rise alongside stronger economic activity, better occupancy and rent growth can help support property income and offset some of that pressure. The outcome depends on why rates are rising, the type of REIT, and each company’s debt and operating fundamentals.
How do rising interest rates affect REITs?
There is no single “interest rate” that determines how real estate stocks perform. Investors respond to expectations about short-term policy rates and longer-term market yields, which can move in different directions. The federal funds rate is not the same as the 10-year Treasury yield; long-term yields also reflect market forces. The Federal Reserve discusses this distinction in its analysis of what drives long-term interest rates.
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Higher rates can affect REITs through three main channels: valuation, financing costs, and property operations. The first two can weigh on share prices or cash flow; stronger economic conditions can support the third. The reason rates are rising matters as much as the rate move itself.
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When market yields rise, investors may use a higher discount rate to value future cash flows. All else equal, that lowers the present value they assign to future income. Higher yields on lower-risk fixed-income investments can also make a REIT’s dividend less appealing at its current share price, potentially putting pressure on its valuation.
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This is a market repricing channel: share prices can respond to changing rate expectations before a REIT’s current rents or interest payments change.
Borrowing and refinancing costs
Higher rates can raise interest expense when a company has floating-rate debt, needs new financing, or refinances debt that has matured. The timing and scale of the effect depend on the company’s fixed- versus floating-rate mix, maturity schedule, leverage, and access to capital. A REIT with fixed-rate debt due years later does not face the same immediate exposure as one with floating-rate borrowing or substantial near-term maturities.
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Property operations can offset some pressure
Rates may rise during an economic expansion. If stronger demand helps a REIT maintain occupancy, raise rents, and grow net operating income (NOI) and funds from operations (FFO), those operating gains can counter some financing or valuation pressure. That offset is not guaranteed: demand and leasing conditions vary by property sector, and rates can rise in weaker as well as stronger economic conditions.
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Equity REITs and mortgage REITs face different risks
Equity REITs own or operate properties. Their rate exposure is tied to leasing, occupancy, rents, property values, and corporate financing. To assess one, look at its property operations alongside its debt terms.
Mortgage REITs own or finance mortgage-related assets rather than relying primarily on rent from properties. Their results can be affected by mortgage-security prices, financing costs, borrower prepayments, changes in asset duration, mortgage demand, and hedging outcomes. Angel Oak Mortgage REIT’s 2025 annual report filed with the SEC describes risks for that company; it is an issuer-specific example, not a complete description of every mortgage REIT.
What historical performance says—and does not say
Nareit reports that REIT total returns were positive in 78.0% of periods when long-term Treasury yields were rising, from Q1 1992 through Q4 2024. Returns were positive in 78.1% of falling-yield periods over the same span. These figures are historical frequencies, not a forecast, guarantee, or proof that rising yields cause REIT gains. They show why the direction of rates alone is not enough to explain REIT performance. See Nareit’s historical analysis and commentary.
Edward F. Pierzak, writing for Nareit on July 15, 2026, observed: “Elevated or rising interest rates, however, do not necessarily equate to weak, or poor, real estate performance.” That is a statement about the possibility of different outcomes, not a rule that REITs do well whenever rates rise.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsWhat industry debt figures can tell you
Nareit’s Q2 2026 industry snapshot reported debt equal to about 34% of market assets, approximately 90% fixed-rate debt, an average debt maturity just under six years, and a weighted average interest rate of 2%. These figures describe an industry-level snapshot, not the balance sheet or borrowing cost of every REIT. Company-level debt terms can differ materially. Nareit provides the figures in its Q2 2026 balance-sheet commentary.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How to assess a particular REIT
Industry averages cannot substitute for the issuer’s own filings. For a company-level view, examine these factors together:
- Debt structure: Identify fixed- and floating-rate debt and whether the company discloses hedges.
- Maturities: Check which years debt comes due and whether refinancing needs are concentrated in the near term.
- Leverage and coverage: Consider debt relative to assets and the company’s ability to meet interest obligations.
- Property fundamentals: Review sector-specific tenant demand, occupancy, leasing conditions, and rent growth.
- Operating direction: Track NOI and FFO to see whether property income is strengthening or weakening.
- REIT type: Distinguish a property-owning equity REIT from a mortgage REIT, whose asset values, duration, prepayments, and hedging can be central to results.
These checks help explain how rate changes may reach a company’s cash flow and valuation; they do not establish how its shares will perform.
Why the reason for a rate increase matters
A rise in rates driven by stronger demand may coincide with healthier leasing and rent growth. A rise that occurs amid inflation, volatility, or economic weakness may come with more difficult operating conditions. In its risk disclosure, Angel Oak Mortgage REIT states that increases in interest rates and inflation “have led, and may continue to lead, to economic volatility, increased borrowing costs, price increases and risks of recession.” That statement appears in the company’s SEC-filed annual report and describes risks it identifies, not a universal forecast for REITs.
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