Why Now is the Time to Grab Double-Digit Dividends in REITs

The real estate investment trust (REIT) market is poised for a significant rebound, driven by three key trends that are reshaping the landscape. While some of these shifts are well-known to investors, others are flying under the radar. By understanding these trends and taking timely action, investors can position themselves to capture double-digit dividends in the REIT sector. Let’s break down these opportunities and outline a straightforward strategy to capitalize on them.

The Obvious Starts: REITs Are Due for a Rebound

REITs have struggled since the onset of the COVID-19 pandemic. The benchmark SPDR Dow Jones REIT ETF (RWR), which tracks the performance of the REIT sector, has returned just 17% since the start of 2020. This translates to an annualized return of 3.3%, far below the 8.6% average yearly return that RWR has delivered since its IPO in 2001. While this underperformance might seem concerning at first glance, it actually presents an opportunity. The reasons behind the sluggish performance of real estate investments are clear and temporary, setting the stage for a strong rebound in the near future.

The First Big Shift: The Return to Office

One of the most obvious factors driving the recent underperformance of REITs is the shift toward remote work during the pandemic. As governments mandated stay-at-home orders, companies were forced to rethink their office space needs, leading to a decline in the commercial real estate sector. Office REITs were particularly hard hit, as businesses reduced their office footprints. However, the tide is now turning. With return-to-office mandates and hybrid work structures becoming increasingly common, office REITs are starting to outperform once again. The VanEck Office and Commercial REIT ETF (DESK) has already begun to outpace RWR, signaling a potential turnaround for the sector.

The Second Big Shift: Interest Rates and Their Impact on REITs

Another major factor contributing to the recent challenges in the REIT market is the direction of interest rates. After recovering from the pandemic-induced downturn in 2022, REITs faced another setback as rising interest rates increased borrowing costs and limited growth potential. Even as of now, REITs remain below their pre-pandemic peak, while the broader S&P 500 index has surged 30% above its post-pandemic high. The good news is that interest rates are likely to move lower in the coming years, which should ease the pressure on REITs and pave the way for a recovery. While the Federal Reserve has signaled that rate cuts will be gradual, any downward movement in rates should still provide a boost to the REIT sector.

The Third Big Shift: Europe’s Real Estate Demand

The third trend driving the potential rebound in REITs is one that fewer investors are talking about: the strong demand for real estate in Europe. According to the Financial Times, U.K. property demand surged by 26% in 2024, with the hotel sector leading the charge. This uptick in demand is not just a fleeting trend but rather a shift in sentiment, as indicated by comments from Wall Street analysts and real estate experts. The mood in the European market is cautiously optimistic, with growing interest in real estate investments across the continent. This trend presents a unique opportunity for investors to diversify their portfolios and tap into growth opportunities outside the U.S.

A Simple Strategy to Profit from These Trends

To capitalize on these trends, investors should consider a diversified approach that balances exposure to both U.S. and international markets while avoiding overpriced sectors. One effective way to do this is through the CBRE Global Real Estate Income Fund (IGR), a closed-end fund (CEF) that offers a compelling combination of growth and income. IGR allocates about a third of its assets outside the U.S., with a focus on regions like the U.K., Japan, and continental Europe, where growth is underway but not yet fully recognized by the mainstream market. In the U.S., the fund is invested in high-growth REITs such as Equinix (EQIX), a leader in data-center ownership, and American Tower (AMT), a major player in the cell-tower industry. IGR also holds Invitation Homes (INVH), a residential REIT that has delivered an impressive 8.1% annualized return since its IPO in 2017.

Why IGR is the Perfect Vehicle for This Strategy

IGR stands out for its attractive 13.8% dividend yield, which has already captured the attention of income-focused investors. The fund’s strong performance in 2024, which saw it more than double the returns of RWR, is a testament to its potential. While IGR experienced a pullback in October 2024 due to a market selloff, it now trades at just a 1% premium to its net asset value (NAV). This represents an attractive entry point for investors, as the fund is well-positioned to benefit from further rate cuts and continued growth in global real estate demand. With the Federal Reserve expected to resume rate cuts in June, IGR is likely to attract even more investor interest, driving its dividend yield higher and potentially outpacing RWR once again.

In conclusion, the combination of office REITs rebounding, interest rates moving lower, and strong demand for real estate in Europe creates a compelling case for investing in REITs right now. By leveraging a diversified fund like IGR, investors can capitalize on these trends while securing a steady income stream. The time to act is now, as the stars are aligning for a strong recovery in the REIT sector.