Amid concerns that artificial intelligence could precipitate a market crash, real estate investment trusts may be poised to shine. Concerns over the disruption of AI weighed on software stocks, with the S&P 500 falling more than 1% on Monday. The index has been slightly negative so far this year. However, the real estate sector of the S&P 500 is up more than 8% since the beginning of the year. .SPLRCR .SPX YTD Line Comparison of the S&P 500 real estate sector and the S&P 500 year-to-date sector. Markets have been under pressure in recent weeks due to concerns that AI will transform many sectors. Even REITs had their turn earlier this month, with SL Green Realty, BXP and Hudson Pacific Properties stoking fears of artificial intelligence disruption in the office space. Commercial real estate brokerages such as CBRE and Jones Lang LaSalle were also hit. But BMO analyst John Kim said the office sector is only a small part of the overall REIT market. “Interest rates are most likely going to go down,” Kim told CNBC. “If that happens, it will generally be good for REITs in terms of income growth. It will help with the cap (capitalization rate) used to value real estate assets. It will contribute to the attractiveness of REIT dividend yields.” In fact, BMO predicts that in 2026, the sector will be poised to recover on what it calls a “REIT redemption tour.” In addition to capital growth, REITs also pay dividends. Timberland, diversified, specialty and data centers were the top performers in January, according to industry group Nareit. Offices and residences were in the worst condition. “If you look at REIT operations, they’ve been strong. If you look at their balance sheets, they’ve been strong,” said Ed Pierzak, senior vice president of research at Narite. “We’re starting to see an increase in REIT trading activity on the real estate side, which we think is a big positive. This is really a potential sign that the broader (real estate) market may be on the rebound as well.” Finding Opportunities Although REIT performance is improving, the sector still has a ways to go, and that means there are many opportunities for investors, BMO’s Kim said. He predicts a total return of 17% in 2026. One of his favorite areas is data centers. Despite all the excitement about artificial intelligence, it was one of the worst-performing sectors within the REIT market last year. Total return in 2025 was -14%, compared with 2.9% for the MSCI US REIT index, Kim said in a January note. One of the best performing data centers this year. But Janus Henderson’s Greg Kuhl believes there is room for him to move up even further. He expects data center growth to be among the best in the REIT world. “The amount of spending on AI infrastructure is basically all good news for data centers,” said Kuhl, portfolio manager of the firm’s JRE U.S. real estate ETF. Kuhl and Kim both like Equinix, a data center REIT with a 2% dividend yield. Equinix is one of BMO’s top REIT picks for 2026. The company is also one of JRE’s largest holdings, accounting for approximately 9% of its assets. “The company had a record quarter in leasing, and we’re starting to see real demand from that type of customer, AI inference-driven demand. The volume was huge,” Kuhl said of Equinix’s recent fourth-quarter results. EQIX 1Y Mountain Equinix’s 1-Year Results Earnings before interest, taxes, depreciation, amortization and operating funds for the quarter were below Street expectations, but the company’s full-year outlook beat expectations. BMO also likes Digital Realty Trust in the data center space, noting that the company’s portfolio is well positioned to sign large leases in multiple markets over the next few quarters. On the other hand, Prologis is the top holder in JRE. Kuhl pointed out that this is an industrial REIT that also has a data center business. He said data center expansion was undervalued in the market and the core business is improving as demand recovers. In the healthcare space, senior housing REITs stand out thanks to an aging population and limited supply. Welltower is one of BMO’s top REIT picks for 2026, and its stock holds the second-highest position within JRE, accounting for nearly 12% of assets. This stock has a dividend yield of 1.4%. “If the industry is currently 90% occupied, demand increases by 5% per year, supply increases are zero, and the industry fills up quickly,” Kuhl said. “That’s the good thing about being a landlord.” WELL 1Y Mountain Welltower’s 1-year performance The company has the most exposure to senior housing and is also a leader in implementing AI within its business, he said. “The amount of data you track helps in many ways,” Kuhl said. That could mean identifying an acquisition target and helping select the operator to operate the building, he added. “We are starting to see the beginnings of driving their growth beyond what the industry as a whole can do,” he said.
