ASX REIT shares come with plenty of positives.
A real estate investment trust (REIT) is a company that owns and operates property assets that typically produce income.
REITs can have various property types in their portfolios, or they might specialise in just one type. Some focus on commercial real estate, such as offices, hospitals, shopping centres, warehouses, and hotels.
Investors may choose to target this asset because they typically provide predictable income through regular distributions, supported by rental cash flows and a tax-efficient structure.
REITs also offer potential capital growth and diversification benefits, making them attractive as a long-term investment option.
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Recent underperformance
Despite the favourable aspects of REITs, over the last few years, this asset class has largely underperformed relative to other sectors.
Many REITs struggled through and post pandemic due to market shifts.
For example, some REITs own and operate office buildings.
COVID-driven shifts in work patterns combined with poorly timed new supply drove vacancies higher, and rents lower across Australia's major CBDs, with asset values following suit.
Similar headwinds impacted REITs engaged in retail spaces like shopping centres.
However new insight from VanEck suggests the tide could be turning after years of underperformance.
Supply demand dynamics improving
According to VanEck, office REITs were among the best-performing A-REIT subsectors in 2025.
In a new report, the ETF provider said this momentum could continue in 2026 for several reasons.
VanEck said supply pipelines are thinning, economic conditions are favourable and elevated 10-year yields may begin to provide a more supportive backdrop for sector performance.
We think the medium-term outlook for office REITs in particular is positive, albeit one that still demands selectivity.
Pranay Lal, Portfolio Manager, VanEck said vacancy rates have stabilised and are expected to trend lower, with the supply/demand office space dynamics potentially improving.
High replacement costs, restrictive financing conditions and limited development pipelines are likely to constrain further supply, with leading leasing agent Jones Lang LaSalle Incorporated (JLL) forecasting new supply to be almost half the 20 year calendar average.
Economic conditions favourable
According to VanEck, valuations across office REITs are closely linked to broader macroeconomic conditions.
Periods of strong economic activity, low unemployment and robust population growth have historically been supportive of structurally lower vacancy rates.
Australia has seen a marginal acceleration in GDP growth, supported by improving business investment and consumer spending.
Additionally, unemployment is near a historical low and forecast to stay in the 4% range over the medium term.
This backdrop further supports a recovery in CBD office demand.
Office and retail REITs are currently offering compelling value, we think. Both sectors are trading at discounts to net tangible assets, suggesting scope for a re-rating toward more normalised valuation levels. This potential mean reversion could act as a catalyst for relative outperformance.
How to gain exposure
For investors looking to gain exposure to this sector, there are a few options to consider.
For pure-play office REITs, Centuria Office REIT (ASX: COF) owns a portfolio of high-quality office buildings across Australian capital cities and key markets.
Other office REIT options include:
Another option is to target a thematic ASX ETF such as VanEck Vectors Australian Property ETF (ASX: MVA).
MVA ETF gives investors exposure to a diversified portfolio of Australian REITs, however this isn't exclusively office owners.
