Last year was brutal for the real estate investment trust (REIT) sector. Rising interest rates created two headwinds for the industry. They made it more expensive to borrow money, making it harder for REITs to finance investments. Meanwhile, higher rates made lower-risk investments like government bonds and bank CDs more attractive to income-focused investors, causing REIT stock prices to fall to compensate investors for their higher-risk profiles. These issues caused REITs to lose about a quarter of their value on average last year.

Some REITs were down even more due to additional pressure points. Two particularly hard-hit REITs were Digital Realty (NYSE: DLR) and Medical Properties Trust (NYSE: MPW), which have plunged more than 40% since the start of 2022. While those REITs were down sharply last year, they could bounce back big-time in 2023. 

Shares of Digital Realty have fallen nearly 43% since the beginning of last year. That shellacking has driven the data center REIT's dividend yield up to 4.8%. While higher interest rates have weighed on its stock price, that's not the only issue. The company has also battled foreign exchange headwinds and concerns about a slowdown in tech-related spending.

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Source Fool.com