Macroeconomic tailwinds support REIT performance
The real estate investment trust market enters 2026 at an inflection point. After delivering modest total returns in 2025 - approximately 6% in Canada and 3% in the United States through mid-December - REITs have materially underperformed their respective broader equity benchmarks. This divergence reflects capital's ongoing migration toward secular growth narratives, particularly artificial intelligence and infrastructure plays, which have dominated investor sentiment. Yet beneath the surface, the foundation for real estate fundamentals appears to be strengthening.
Our base-case scenario anticipates high-single-digit total returns for U.S. REITs, supported by moderate economic growth, stable to lower long-bond yields, and declining interest rate volatility. This environment historically favors real estate, as the sector tends to outperform during periods of low economic growth and declining rates. The spread between funds from operations multiples and bond yields has already compressed, suggesting that capital markets are beginning to recognize real estate's value.
"REITs appear positioned to deliver better total returns in 2026, though relative performance will largely depend on whether the AI trade continues or pulls back. Fundamentals could also begin to tighten, especially if macro uncertainty clears."
If interest rates continue their downward trajectory in 2026, this spread may narrow further, potentially unlocking multiple expansion.
Valuation metrics reinforce this thesis. REITs currently trade at a modest discount to their historical average, suggesting that current market pricing may not fully reflect the sector's strength. The sector's valuation multiples and implied yields appear increasingly attractive relative to broader equity markets, particularly when benchmarked against government bond yields. This disconnect suggests that current prices may not adequately reflect the sector's underlying fundamentals and growth potential, creating a compelling entry point for investors reassessing their real estate allocations.
US fundamentals improve across healthcare and residential
The United States real estate landscape is characterized by divergent subsector performance, but we think the overall trajectory tilts positive. Healthcare real estate emerges as the standout performer heading into 2026. Supported by demographic tailwinds from an aging population, seniors housing facilities continue to exhibit the strongest fundamentals in the healthcare category.
Skilled nursing facilities, medical office buildings, and UK care home models also demonstrate healthy demand profiles, though life sciences properties face headwinds from excess supply and modest leasing activity.
Residential property types present a more nuanced picture. Conventional multifamily apartments and single-family rentals are expected to face below-average growth in 2026 due to weak employment growth and market-specific challenges affecting major metropolitan areas. However, manufactured housing represents a compelling alternative, offering larger-than-normal growth differentials and reduced exposure to employment volatility and automation risks. The sector's more defensive characteristics historically make it increasingly attractive in an uncertain macroeconomic environment.
"Healthcare real estate remains uniquely positioned given strong demand trends supported by the aging population. Seniors housing continues to tout the best fundamentals across property types."
Industrial real estate is gradually improving, though cautiously. Activity is expected to pick up, with market tightening potentially occurring in the first half of 2026 and accelerating through the second half. However, rental rate growth may remain constrained until vacancy rates normalize to the 5-6% range—a threshold unlikely to be reached before 2027. Concerns persist regarding cold storage, where rising supply pressures conflict with falling inventories as measured by USDA data, creating near-term headwinds for that subsector.
Self-storage continues its slow recovery trajectory following COVID-related normalization. While move-in rates have turned slightly positive, lingering supply and weak catalysts suggest that recovery will remain gradual rather than sharp. Without significant demand acceleration, storage operators will likely continue managing conservative pricing and occupancy strategies.
Canadian market recovery faces immigration and supply challenges
Canadian REITs are expected to make up some lost ground in 2026, though the path to recovery differs from the U.S. story. The sector kept better pace with broader equity markets earlier in 2025, but investor appetite has since faded. Analyst forecasts already embed stronger growth profiles ahead, with funds from operations growth accelerating and net asset value upside anticipated. Supported by moderate economic growth and relatively steady interest rates, funds from operations growth is expected to be the primary driver of performance. Combined with competitive distribution yields, base-case scenarios suggest that Canadian REITs may deliver meaningful total returns in 2026, positioning the sector for potential outperformance as capital gradually returns to the space.
Seniors housing maintains its organic growth leadership across Canadian property types, even as that leadership moderates. Demographic tailwinds, long-term care bed shortages, and muted new supply should drive continued occupancy gains. Retirement and long-term care operators are expected to achieve net operating income growth in the high-single to low-double-digit percentage range in 2026, supported by healthy rent and service rate growth alongside fading expense pressures such as elevated agency staffing costs. Portfolios concentrated in private-pay retirement homes are positioned to benefit more than those heavily exposed to regulated long-term care.
Canadian industrial fundamentals are expected to firm in 2026. While U.S. trade policy uncertainty and USMCA reviews may weigh on leasing velocity, rising requests for proposals and tenant decisions returning to normal cycles suggest improving underlying demand. Critically, new supply growth has materially slowed, providing relief after years of rapid construction. Availability is forecast to peak at approximately 6% (compared to 5.5% in Q3 2025), with market rents expected to remain flat to slightly down. However, the gap between in-place and market rents will likely remain substantial, underpinning mid-single-digit percentage net operating income growth for REITs with Canadian industrial portfolios.
“We expect seniors housing to maintain its organic growth leadership across subsectors, even if it’s moderating.”
Canadian retail demonstrates resilience supported by constrained supply. Occupancy sits near record highs at 97.1%, and organic growth is expected to reach approximately 3% in 2026. Higher rents from annual contractual steps and positive renewal spreads (+10% in the first nine months of 2025) should drive most growth as in-place rents remain meaningfully below market. Essential retailers such as grocers and pharmacies continue attracting robust demand, as do experiential tenants like quick-service restaurants and health and wellness centers. The approximately 14 million square feet of vacancy resulting from a major retailer's failure is viewed as manageable, with re-leasing, repositioning, and demolition expected over the coming years.
The demand-supply inflection reshapes 2026 outlook
Perhaps the most significant change for 2026 centers on supply-demand dynamics. After years of tight occupancy and builder euphoria, new construction has materially slowed across most property types in both markets. This deceleration removes a key headwind that has constrained pricing power throughout 2024 and 2025.
As supply growth moderates and tenants and residents return to making long-term decisions, REITs positioned with quality assets in strong markets should see improved leasing spreads and occupancy gains. This fundamental shift from a supply-constrained environment to one where demand can finally reassert itself underpins confidence in 2026 recovery prospects.
RBC Capital Markets’ Global Real Estate team authored “2026 Global Real Estate Outlook,” published on December 19, 2025. For more information or to access the full report, please contact your RBC representative.
