How REITs Perform During a Recession

How REITs Actually Hold Up When the Economy Tanks

Here’s a stat that made me spit out my coffee: during the 2008 financial crisis, REITs dropped nearly 68% at their worst point, according to Nareit. Brutal, right? But here’s the thing that most people miss—by 2010, many of those same REITs had clawed back most of their losses, and some sectors barely flinched at all!

I’ve been investing in real estate investment trusts for about twelve years now, and I gotta tell you, recessions are where REITs either prove their worth or completely humble you. This matters because a lot of folks assume real estate is “safe” no matter what. That’s not exactly true, and I learned that lesson the expensive way.

My First Recession Lesson (It Wasn’t Pretty)

Back in 2020, I had a chunk of my portfolio in mall REITs. Big mistake. When COVID hit and everyone stopped going outside, retail REITs got absolutely crushed because foot traffic just vanished overnight.

Meanwhile, my buddy Dave had loaded up on industrial and data center REITs. He was laughing all the way to the bank while I was staring at red numbers wondering what happened. That experience taught me something crucial: not all REITs are created equal during a downturn.

Retail REITs tend to suffer the most during recessions
Industrial and logistics REITs often stay resilient
Healthcare REITs are usually pretty steady since people need medical care regardless of the economy
Data center REITs have actually thrived in recent downturns thanks to cloud computing demand

Why Some REITs Perform Better Than Others in a Recession

It really comes down to what kind of property the REIT owns and how essential that property is. Think about it this way, ya know? People still need groceries, hospitals, and warehouses even when times are tough, but they don’t necessarily need a new mall visit or a fancy office lease.

I read a solid breakdown from Investopedia that basically confirmed what Dave and I both experienced firsthand. Essential-service REITs weather storms way better than discretionary-spending REITs. That’s just common sense once you think about it, but I definitely didn’t think about it enough back in 2020.

Sectors That Historically Hold Up

Not gonna lie, I was skeptical about healthcare REITs for years. They seemed boring compared to flashy retail properties. But after watching them stay stable through both 2008 and 2020, I’ve become a total convert.

What About Dividends During a Downturn?

This is where things get interesting, and honestly a little scary sometimes. REITs are legally required to pay out at least 90% of taxable income as dividends, which sounds great until a recession squeezes their income and they have to cut those payouts.

I’ve had dividends slashed before, and it stings way more than a stock price drop somehow. There’s something about seeing that regular income disappear that hits different emotionally, even though logically I know it’s temporary. My tip? Diversify across REIT sectors so one bad cut doesn’t wreck your whole income stream.

Interest Rates Make Everything More Complicated

Recessions often come paired with the Fed cutting or raising interest rates, and REITs are super sensitive to this stuff because they carry a lot of debt. Lower rates can actually help REITs by reducing borrowing costs, but higher rates during inflationary recessions (like we saw in 2022) can crush REIT valuations.

The Federal Reserve’s decisions basically ripple through the entire REIT market, whether we like it or not. I check rate announcements now like it’s my job, because honestly, for my portfolio’s sake, it kind of is.

Practical Tips I Wish I Knew Earlier

After years of trial and error—mostly error, if I’m being honest—here’s what actually works when preparing your REIT portfolio for a potential recession.

Diversify across sectors, don’t put all your eggs in retail or office REITs
Check the REIT’s debt levels and interest coverage ratio before investing
Look at occupancy rates and tenant quality, strong tenants mean stable rent payments
Favor REITs with essential-service properties over luxury or discretionary ones
Don’t panic sell during downturns, historically REITs recover over time

I’ll admit, that last point is hard to follow in the moment. When your portfolio’s bleeding red, every instinct screams to sell. But looking back at my own mistakes, the times I held on through the panic were the times I came out ahead eventually.

So, Are REITs Recession-Proof?

Nope, definitely not. But some REITs are recession-resistant, and that distinction matters a whole lot when you’re building a portfolio meant to survive economic storms. The key is understanding which sectors tend to hold steady and which ones get wrecked when consumer spending dries up.

Real estate investing during uncertain times isn’t about avoiding risk entirely, it’s about being smart with where you place your bets. Every investor’s situation is different, so take what I’ve shared here and adjust it to fit your own risk tolerance and financial goals. Always do your own research or talk to a financial advisor before making big moves, especially with something as impactful as your retirement savings.

If this got you thinking more about how to build a resilient real estate portfolio, I’d genuinely encourage you to check out more articles over at the Rent Yield Lab blog. There’s a ton of practical stuff there that’s helped me avoid repeating my own dumb mistakes, and hopefully it’ll do the same for you!