What Happens To REITs When Interest Rates Go Up?

Rising interest rates do not inherently trigger a decline in REIT performance, despite conventional wisdom suggesting a negative correlation. Historical data from Singapore and the United States reveals that REITs often appreciate during periods of rate hikes because these increases typically reflect a robust economy. In such environments, businesses expand and consumers spend more, enabling REITs to raise rents and offset higher borrowing costs. While interest rate adjustments can cause short-term market volatility, long-term success depends on fundamental factors like asset quality, prime location, and prudent capital management. Investors should prioritize REITs with manageable gearing levels—ideally below 40%—strong interest coverage ratios, and well-staggered debt maturity profiles to mitigate risks associated with refinancing. Ultimately, REIT performance is driven by supply-demand dynamics and economic health rather than interest rate fluctuations alone.