What drives REIT performance?
Understanding the key drivers helps investors assess when REITs are likely to outperform or underperform other asset classes:
1. Interest rates
The single most important macro driver. Falling rates reduce financing costs, compress the risk-free rate benchmark and typically support property valuations. Rising rates have the opposite effect.
2. Occupancy and rental growth
Like-for-like rental income growth reflects the health of the underlying property market. Segro’s 6% like-for-like growth in 2025 illustrates the strong fundamentals in logistics despite the rate headwind.
3. Discount to NAV
When REITs trade at a significant discount to the book value of their properties, it can represent a buying opportunity if valuations are expected to recover. As of June 2026, the average 10-15% discount across the UK sector has narrowed considerably from the 2023 trough, but the rate hold and elevated gilt yields are limiting further compression in the near term.
4. Structural property demand
Logistics demand from e-commerce and supply chain reshoring, student housing from demographic and demand trends, and data centre demand from AI infrastructure are all secular tailwinds that support specific REIT subsectors independently of the rate cycle.
5. Gilt yields
Because REIT dividends are benchmarked against risk-free gilts, movements in 10-year gilt yields directly affect relative attractiveness. At approximately 4.82% as of 17 June 2026, the 10-year gilt yield is elevated relative to most REIT dividend yields, which limits the sector’s re-rating potential until either gilt yields fall or REIT earnings grow sufficiently to widen the yield premium.
