REITs own income-producing commercial real estate, and they pay 90% of their earnings as dividends. They have been one of the worst performing sectors so far, because of fear of higher interest rates will increase borrowing costs, leaving less money available for dividend payouts.
However, with a strong economy, REITs could rebound because they could charge tenants higher rents. During the 2004-2006 period, when the Fed hiked interest rates 17 times, REITs posted a cumulative total return of 78% versus the 32.5% for stocks!
What to invest now?
You could consider Vanguard Real Estate ETF (VNQ) which has more than 180 holdings, its recent yield is 4.8%, and 10-year annualized performance is 6.8%.