REITs look like the perfect retirement holding — real assets, high distributions, inflation-linked rents. They also fall as hard as shares, move against interest rates, and hide enormous differences between sectors. Office and industrial property are not the same investment.
"Rate beta" is the approximate price move for each one-point rise in long rates. REITs are leveraged, long-duration income assets, so they behave a little like long bonds with a growth option attached — which is why they often fall at the same time bonds do, exactly when you wanted them to diversify.
Property trusts look like the ideal retirement holding. They're useful, but not for the reasons people usually buy them.
A REIT — a real estate investment trust — is a listed company that owns commercial property and passes most of the rent to shareholders. It gives you a slice of warehouses, shopping centres, apartment blocks or data centres without needing to buy a building or find a tenant.
The appeal is obvious: real assets, high distributions, rents that tend to rise with inflation. All true. What surprises people is the ride. REITs are listed, geared, and long-duration income assets, which means they behave rather like long bonds with a growth option bolted on — they fall when rates rise, and they fall when the economy weakens.
That's the awkward part. They tend to drop at the same time as both shares and bonds, which is precisely when you wanted them to be doing something different.
Rob puts $150,000 into REITs for the income. He notices office property yields 7.5% while industrial yields 4%, and it's tempting to load up on the higher number.
That yield gap isn't a gift. It's the market pricing in genuine uncertainty about long-run demand for offices — the high yield exists because investors expect the distribution to be cut. Buying the highest-yielding sector is one of the more reliable ways to lose capital while feeling like a careful income investor.
Rob spreads across six sectors instead. His blended yield comes to about 4.75% — $594 a month — with meaningfully less exposure to any single structural bet. And when he models a 1.5-point rate rise, he sees the holding fall by roughly two years' worth of distributions, which tells him not to treat that income as untouchable.
The "rate beta" column is the approximate price move for each one-point rise in long rates. Growth-priced sectors like data centres are the most sensitive, because more of their value sits in future earnings.
The concentration gauge translates your weights into an "effective number of sectors". Six holdings spread evenly gives you six. Six holdings with 60% in one gives you barely two.
REITs work well as a modest slice of a diversified portfolio — commonly somewhere around 5–10% — held for income and inflation-linkage, with the understanding that they'll swing as hard as shares. Above roughly 15% you're no longer diversifying; you're taking a considered view on commercial property, which may be entirely deliberate but should at least be conscious.
One thing worth checking: if you own your home, you already have substantial property exposure. Adding a large REIT allocation on top concentrates you further into a single asset class rather than spreading you across several.
General information only — not financial advice, and not a recommendation of any sector or security. Default yields, volatilities and rate sensitivities are broad illustrative figures for modelling purposes; they are not live market data and will not match any particular fund or index. Real REIT behaviour depends on leverage, lease length, tenant quality and local supply, none of which are captured here. Check current figures for anything you actually hold.