The increased cost of capital will lead to pressure on capitalization rates as the spreads between the cost of capital and capitalization rates will be compressing.

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One measure of how expensive REITs have become is capitalization rates, defined as net operating income (profit after operating expenses but before debt service) divided by a property's value.

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For instance, instead of using market capitalization as a basis for portfolio positions, some newer ETFs use other financial measures, such as revenue or dividend rates, to weight their holdings.

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