3 Top REITs to Buy as Interest Rates Fall

Key Points

• Real estate investment trusts (REITs) have historically performed well amid falling interest rates, due to lower borrowing costs, rising valuations for real estate portfolios, and increased demand from income investors.

• While falling rates may lift the REIT sector overall, not all REITs will benefit in the same way, or to the same degree.

• Three REIT-focused investments could outperform in the coming rate cut cycle that the Federal Reserve initiated in mid-September.

• 10 stocks we like better than Realty Income ›

Real estate investment trusts (REITs), or companies that own, operate, or finance income-producing real estate, tend to outperform when interest rates fall.

These investment vehicles, which must pay out 90% of their taxable income as dividends, offer yields that become more appealing as Treasury and corporate bond yields fall. Their valuations can rise because the 10-year Treasury yield is the benchmark for discounting future cash flows from REITs, so as it falls, REIT cash flows improve, boosting valuations. Lower borrowing costs are another tailwind, because REITs fund operations through long-duration debt, which can be refinanced at more favorable rates, boosting profitability.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

The outperformance of REITs can be seen by the returns of the Vanguard Real Estate ETF (NYSEMKT: VNQ) during the 2008-2015 era of low interest rates. The fund, which offers broad exposure to U.S. equity REITs, returned 195% from December 2008 to December 2015, while the S&P 500 (SNPINDEX: ^GSPC) returned 126% in that time.

But while the trend is clear for the overall sector, not all REITs are equal amid lower rates. REITs in different sectors will respond differently to another era of "cheap money." Here are three opportunities in the REIT universe that investors should consider.

Image source: Getty Images.

1. Realty Income

Founded in 1969, Realty Income (NYSE: O) provides real estate capital to the world's leading companies, with a portfolio of 15,600 properties. Some of its clients include 7-Eleven, Lowe's, Chipotle, Sainsbury's, and Treasury Wine Estates.

Realty Income calls itself "The Monthly Dividend Company" because of its ability to grow its monthly payouts each year since going public in 1994. In the 31 years since, the company has grown payouts by an average of 4.2% a year. Today, its dividend yield is 5.3%, nearly five times that of the S&P 500 average.

This 31-year streak was possible in part because of its portfolio occupancy of 98.6%, combined with a weighted average remaining lease term of about nine years, meaning that the typical property in Realty Income's portfolio should produce rental revenue for another nine years. That's at the upper end of the average leasing term for commercial and residential properties, which typically ranges from two to 10 years.

The company has produced a positive total operational return each year since it listed in 1994, including during the housing crash of 2008 and the financial crisis that followed. Nonetheless, management noted "continued cash flow pressure from higher interest rates" in its earnings conference in August.

Realty Income has strong fundamentals, as evidenced by its ability to raise its dividend for a 31-year stretch, encompassing all kinds of market conditions. And with $110 million of floating-rate credit facility debt maturing in May 2026, lower rates will give the company a shot in the arm, allowing it to refinance on more favorable terms.

2. Prologis

Prologis (NYSE: PLD) is a global leader in logistics real estate, specializing in high-growth, high-barrier markets. Its 1.3 billion-square-foot portfolio consists of 5,895 buildings serving 6,500 customers. Clients include big names such as Coca-Cola, Amazon, Walmart, Best Buy, Samsung, UPS, and Staples.

The company is well-diversified, with its top 10 customers comprising only 14% of the total portfolio. Since 2019, its dividend growth of 90% has handily outpaced that of other logistics REITs, not to mention all REITs in the S&P 500 and the average dividend growth of the S&P 500 itself.

A major potential tailwind for Prologis is the surge in data centers required in the age of artificial intelligence (AI). Up to $7 trillion in data center investment could be needed to keep pace with the demand for computational power by 2030.

While the company does not report revenue for data center-related projects, Prologis launched a $25 billion data center arm in 2024 to tap into high-margin digital infrastructure and AI demand. Prologis has been called "the landlord of data center landlords" for its strategic industrial spaces near power infrastructure. The company has 1.4 gigawatts (GW) fully secured in its data center power pipeline, and another 2.2 GW in advanced stages, representing almost 40% of the 10 GW that the company plans to build to help power the AI revolution.

Prologis offers a 3.5% yield, well above the 1.2% S&P 500 average.

3. Vanguard Real Estate ETF

The aforementioned Vanguard Real Estate Index Fund ETF provides exposure to over 150 REITs and real estate stocks. Built to provide high income and moderate long-term capital appreciation, the fund tracks the performance of a benchmark, the MSCI U.S. Investable Market Real Estate 25/50 Index.

The fund provides a yield of 3.76%, which is over three times the S&P 500 average. Because the fund is passively managed, it has a minuscule expense ratio of 0.13%, compared to a 0.56% expense ratio for the average exchange-traded fund (ETF).

Year to date, the fund has returned 5.65%, exactly matching its benchmark, and its average annual return of 6.4% exactly matches that achieved by its REIT-centric benchmark. Since its inception in September 2004, the ETF has averaged an annual return of 7.55%. Yet it has a history of significantly outperforming markets in times of low rates; recall that it returned nearly 200% from December 2008 to December 2015, the last prolonged era of cheap money.

For income-focused investors looking to play a new era of cheap money, these three REIT-related opportunities are buys.

Should you invest $1,000 in Realty Income right now?

Before you buy stock in Realty Income, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Realty Income wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $657,110!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,093,751!*

Now, it’s worth noting Stock Advisor’s total average return is 1,064% — a market-crushing outperformance compared to 190% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 22, 2025

William Dahl has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Best Buy, Chipotle Mexican Grill, Prologis, Realty Income, United Parcel Service, Vanguard Real Estate ETF, and Walmart. The Motley Fool recommends J Sainsbury Plc, Lowe's Companies, and Treasury Wine Estates and recommends the following options: long January 2026 $90 calls on Prologis and short September 2025 $60 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.