Perspective

Reset, Not Breakout — Fundamentals Back in Charge

The third quarter of 2025 marked a notable shift. After three years of reacting to interest rates, the conversation finally returned to real estate fundamentals. Earnings came in ahead of expectations, guidance cuts were limited, and management teams were focused on execution rather than reacting to policy noise. The quarter marked the clearest signal yet that fundamentals, not macro headlines, are steering sentiment again.

Sector leadership also came into sharper focus. Health care and data centers took gold with durable growth and credibility. Net lease, industrial, and retail earned silver, demonstrating resilience and steady demand. Even historically challenged segments, such as office, showed signs of bottoming.

This was the quarter U.S. REITs got back to business. Guidance skewed higher, leasing pipelines reopened, and management commentary centered on operations rather than interest rate speculation. While pockets of softness remain—namely in lab space and cold storage—the broader tone shifted meaningfully. The quarter did not bring dramatic surprises, but it brought something increasingly rare: a renewed sense of confidence in the outlook.

Gold

Health Care was the quarter’s most balanced outperformer. Senior housing delivered its strongest stretch in years, with meaningful same store growth and margin expansion as labor pressures eased. Medical office leasing improved, skilled nursing showed incremental progress, and expense trends broadly moved in the right direction. Operators raised guidance with conviction, signaling a shift toward steady growth.

Data Centers reaffirmed their place as the U.S. REIT universe’s structural growth engine. Leasing accelerated, pricing power held firm, and visibility extended well beyond the typical planning window. Artificial intelligence adoption, cloud expansion, and high density workloads continued to drive strong pre-leasing and tight utilization, while power availability remained the primary constraint. Operators highlighted utility partnerships and long- lead infrastructure reinvestments, underscoring that demand is structural, not cyclical.

Silver

Gaming leaned into long duration leases and conservative development pipelines, producing reliable cash flows. Cell Towers regained footing, with domestic leasing firm and churn concerns easing. Net Lease posted steady expansion as acquisition volumes ticked up and spreads widened. Industrial remained resilient, as high occupancy and rent growth continued to be fueled by scarcity in infill markets.

Retail categories, such as malls and shopping centers, delivered constructive quarters, underpinned by tenant demand, improving occupancy, and incremental redevelopment. Residential — single family rentals, manufactured housing, and multifamily — produced results defined by operational discipline: efficiency gains, consistent rent collections, and margin preservation despite supply pressure. Hotels balanced rate management with solid group demand, while Timber offset weaker lumber pricing with real estate revenue and inflation sensitivity.

Bronze

Office showed incremental stabilization, with modest leasing gains and tighter concessions, though occupancy remains well below pre-pandemic levels. Self Storage appears to be nearing a floor, with pricing flattening and expense control improving. Cold Storage remained weak, challenged by soft throughput and power costs. Lab Space cooled sharply, with leasing slowing, tenants consolidating, and development put on pause.

Final Word

The third quarter of 2025 was a reset, not a breakout: U.S. REITs shifted from reacting to executing as fundamentals took charge. Health Care and Data Centers are building defensible moats; Net Lease, Industrial, and Retail are regaining stride; and even Office and Storage show pockets of stabilization. Guidance cuts have faded, leasing pipelines are moving, and capital is flowing. The current REIT market isn’t booming, but it is rewarding rigor over drama, with REITs back in the driver’s seat after years of turbulence.

We believe the dispersion we’re seeing now will accelerate into 2026, making active management increasingly essential.

Author: Peter Zabierek, CFA
Senior Portfolio Manager
Easterly Ranger

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