3 REIT ETFs That Could Be Red Hot in 2026

Real estate investment trusts (REITs) are often considered stable long-term income investments. These companies buy up a lot of properties, rent them out to businesses or individuals, and split that rental income with their investors. They also need to pay out at least 90% of their pre-tax income as dividends to maintain a lower tax rate.

However, many REITs struggled in 2022 and 2023 as rising interest rates drove up the costs of buying new properties and stirred up macro headwinds for their tenants. Higher rates also drove up the yields of CDs and T-bills, which lured income investors away from high-yielding REITs.

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In 2024 and 2025, many REITs stabilized as the Federal Reserve cut its benchmark rates five times. But Treasury yields didn't decline as rapidly as the Fed funds rate, presumably due to concerns of sticky inflation, a potential recession, and the issuance of more government debt to cover the fiscal deficit. Those stubbornly high yields kept investors locked up in fixed income plays and made it difficult for certain REITs -- especially in the office, retail, data center, and industrial sectors -- to expand and gain new tenants.

That's why many REITs have been trading sideways over the past year instead of rallying higher in anticipation of a warmer macro environment. But over the next year, those REITs could soar as declining Treasury yields finally drive more income-seeking investors back toward high-yielding REITs and other dividend stocks.

If you want to capitalize on that trend before that happens but don't want to buy individual REITs, you should consider investing in a few exchange-traded funds (ETFs) that are already broadly diversified across the real estate sector. Let's take a look at three of those promising REIT ETFs, which could rally in 2026.

1. Vanguard Real Estate Index Fund ETF

The Vanguard Real Estate Index Fund ETF (NYSEMKT: VNQ), the world's largest REIT ETF, tracks 153 stocks across 17 REIT sectors. Its top three markets are healthcare REITs (15% of its holdings), retail REITs (13.5%), and industrial REITs (11.3%). It's also invested in data center REITs, telecom tower REITs, and other real estate services.

Its top holding is actual another mutual fund -- the Vanguard Real Estate II Index Fund Institutional Plus Shares (NASDAQMUTFUND: VRTPX) -- which accounts for 14.5% of its assets. Its top individual stocks include Welltower (NYSE: WELL) (6.8% of its assets), Prologis (NYSE: PLD) (6.7%), and American Tower (NYSE: AMT) (4.8%).

VNQ mainly focuses on large-cap REITs, which makes it a stable choice for retirees. It pays an unadjusted effective yield of 3.62% and an adjusted effective yield of 2.83%, which excludes its return of capital and its capital gain distributions from the past two years. It has a low minimum investment of $1 and a low expense ratio of 0.13%. Those low barriers to entry make it a simple way for most investors to gain a bit of exposure to the REIT sector.

2. Schwab U.S. REIT ETF

The Schwab U.S. REIT ETF (NYSEMKT: SCHH) tracks the entire Dow Jones Equity All REIT Capped Index. It holds 124 stocks, and its top three holdings are Welltower (9.9% of its assets), Prologis (8.5%), and American Tower (4.9%). It pays a 30-day SEC yield of 3.6%. There's no minimum investment, and it charges a low expense ratio of 0.07%.

Unlike VNQ, which invests in a few non-REIT real estate companies, SCHH only invests in pure-play REITs. It also only invests in property-owning REITs instead of other real estate companies or the higher-yielding (but more volatile) mortgage REITs (mREITs), which hold mortgages and mortgage-backed securities (MBSes).

3. Real Estate Select Sector SPDR Fund

Last but not least, the Real Estate Select Sector SPDR Fund (NYSEMKT: XLRE) might be a better long-term play for investors who want more exposure to data center, logistics, and communications REITs -- which are all poised to profit from the secular expansion of the cloud, artificial intelligence (AI), and e-commerce markets.

XLRE only holds 31 stocks, and its top three holdings are also Welltower (11.1% of its assets), Prologis (9.6%), and American Tower (7.1%). It aims to provide an "effective representation" of the S&P 500's real estate sector, so it also invests in other types of real estate companies along with REITs.

XLRE pays a 30-day SEC yield of 3.48%, charges a low expense ratio of 0.08%, and doesn't have a minimum investment threshold. It's a bit riskier than VNQ and SCHH, but it might be a good fit for investors who want a better blend of income and growth than other REIT ETFs.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends American Tower, Prologis, and Vanguard Real Estate ETF. The Motley Fool recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $90 calls on Prologis, and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.