Beneath the sector surface: Is real estate on its way back?

In this article we’re exploring:

• How demographic shifts are surfacing opportunities for value investors
• Why long-term investors should keep both eyes on economic fundamentals
• Which real estate giants are leading the post-pandemic recovery
• How a burger restaurant changed how we look at the real estate industry

Few sectors in recent years have taken a beating as brutal as the one real estate took during and after the Covid-19 pandemic. We might argue that consumer and travel were equally affected, but they bounced right back when restrictions were lifted. People were desperate to travel and go shopping again. They were less desperate to go back to the office.

But there are signs of recovery, as the sector posts year-to-date growth of 4.38%^[1]. So could now be the time to take another look at a historically strong sector as it emerges from a challenging era?

Should I invest in the real estate sector?

In the 2016 film The Founder, which portrays the life of McDonald’s former CEO Ray Kroc, the protagonist realises his path to fortune lies in reframing how he sees his business.

“You’re not in the burger business, you’re in the real estate business”, an advisor tells him. And this wisdom is as useful today as it was back in the sixties when Kroc was expanding the burger franchise model around the world.

Real estate isn’t just about offices and homes. You can invest in factories, shopping centres, hospitals, warehouses, senior living facilities and yes, fast food outlets. If you’re bullish on real estate and want to back all or some of the above, a popular way of taking a position is through a real estate investment trust (REIT).

These are companies that own and operate income-generating real estate. You can broadly split REITs into two main categories: commercial and residential. From there, you can further segment them into sectors like healthcare (hospitals), education (schools, colleges and universities) or even by the type of home, such as single-family suburban units or high-density urban apartment buildings.

As well as the real estate itself, you can invest in ancillary services and infrastructure that support the sector. Think mortgages, legal services and brokerages on the tenant side and construction, materials and things like air conditioning, heating and purification systems on the owner side.

You can also take a position on the real estate market without owning a single stock. Discover how you can join the growing number of savvy traders using leveraged spread betting.

Past performance is not an indicator of future performance

Real estate investing is a long game. Investors need to think in terms of decades rather than years. Capex is high, and growth relies heavily on economic fundamentals. Investors and analysts will always be considering whether the economic environment of the next decade will support rent collections and growing property prices.

Interest rates tend to be one of the strongest predictors of real estate investment growth. Unpredictable rates stifle investment. Sky-high rates can cause longer-lasting damage. Historically, investors would have seen real estate as a relatively safe bet over the long term, with most of the headwinds being cyclical and relatively predictable.

The Covid-19 pandemic damaged the sector’s short-term fortunes and has shaken confidence to the point where the real estate sector remains in recovery mode. However, optimism is returning.

As of October 2025, Simon Property Group, America’s largest mall owner, achieved year-to-date growth of 7.05%^[2]. Analysts point to higher foot traffic in America’s discount outlet malls as a driver, with consumers happy to shop but seeking out lower ticket prices.

Can ageing populations and urban renewal drive growth in real estate?

REITs rely on income-generating real estate. So, when someone has cleared their mortgage, it no longer generates income for the bank that issued it or the investors who provided the liquidity. However cynical it may sound, with people living longer, there is a second bite of the income cherry for real estate investors; nursing homes and senior care facilities.

Weltower, a large-cap REIT concerned with infrastructure and healthcare developments, could be seen as a beneficiary of this trend. Year-to-date growth of 40.2% has been impressive. But zooming out, the longer-term performance is even more eye-catching, with 247.4% growth over the past five years getting analysts excited^[3].

Another potential driver of growth for the sector is urban renewal. As demographics and housing needs change while environmental demands put pressure on car ownership, there’s a trend toward people seeking out homes closer to where they work or closer to public transport infrastructure. This is driving investment in new urban developments in major economic centres.

There’s also an interesting quirk of the struggle to get office occupancy rates up again. Owners are pushing amenity-rich properties — think offices with gyms, restaurants and movie theatres — to compete with the convenience and comfort of working from home. This is leading to higher investment in newbuild properties while older buildings stand empty losing money.

How will Fed rate cuts affect the sector?

High interest rates cause two problems for REITs and real estate securities. Firstly, most funds borrow heavily to fund real estate investments, which makes them vulnerable to high or growing interest rates. Secondly, a high-rate environment dampens economic activity, especially home purchases, facilities expansion and workforce expansion, reducing demand for real estate.

Analysts broadly see October’s 25 basis point Federal Reserve rate cut (Fed Rate Cut) as positive in the short term for real estate as a sector, spurring capital inflow. But concerns remain about the extent to which rate cuts are being used as a sticking plaster for a struggling economy.

The bottom line

Real estate is not the sector for quick returns. It’s all about the long game and diversification. For investors and traders who back themselves to make smart calls about the direction of the economy, it can be an opportunity-rich sector. Real estate performance can be a bellwether for where consumers and businesses are putting their money. Keep an eye on macroeconomic signals to stay tuned in to where the sector is headed.