Many an investor thinks real estate investment trusts are simply designed to produce income, but that’s not the case. In fact, thanks to property value appreciation and various value-creation strategies, total real estate investment trust (REIT) average returns can match or beat the overall stock market over time.
In this article, we’ll take a look at the average total returns for REITs as a whole over the last few decades, as well as the performance figures from the major REIT subsectors over time to help in your REIT investing.
What is the average long-term REIT return?
The National Association of Real Estate Investment Trusts, or Nareit, maintains several indices to track the performance of REITs over time. So, let’s take a look at how REITs have performed over the last 30 years.
If we look at the FTSE Nareit All REITs index, it has produced a total REIT average return of 1,460% over the 30-year period through Dec. 31, 2020. On an annualized basis, this translates to an annualized average total return of about 9.6%.
However, this includes both equity REITs and mortgage REITs. A mortgage REIT is so different from an equity REIT that these mREITs aren’t even technically a part of the real estate sector and have dramatically underperformed the market over time.
So, if we look at the FTSE Nareit All Equity REITs index, which only considers REITs that own properties, the total return over the past 30 years is even more impressive, at 1,680%. This is an annualized average return of approximately 10.1%.
REIT returns by subsector
In addition to keeping track of overall REIT returns, Nareit also tracks each REIT sector’s performance. This data only dates back to 1994, so we have 27 full years of performance to evaluate. With that in mind, here’s the average total return of some of the most popular REIT subsectors over that time period.
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