The U.S. real estate sector is in the pink this year. Vanguard Real Estate Index Fund ETF Shares (VNQ Quick QuoteVNQ - Free Report) has jumped 32% this year versus 21.6% gains in the S&P 500. Homebuilding stocks, however, surpassed the renting in 2021 as iShares U.S. Home Construction ETF (ITB Quick QuoteITB - Free Report) is up 37.2%.

The trend for real estate investing appears even stronger going into 2022 as VNQ has gained 2.5% past month against 2.6% losses seen in ITB and the S&P 500. Pacer Benchmark Industrial Real Estate SCTR ETF INDS is the best-performer (up 3.8%) in the past month in the space. The best-performing real estate ETF this year is Nuveen Short-Term REIT ETF (NURE Quick QuoteNURE - Free Report) (up 47.7%).

We highlight below the reasons that have boosted the real estate ETFs lately.

Rising Inflation

Annual inflation rate in the United States accelerated to 6.8% in November of 2021, the highest since June of 1982, and in line with forecasts. It marks the ninth consecutive month the inflation stays above the Fed's 2% target mainly due to supply chain disruptions and a low base effect from last year. In a rising inflation environment, real estate stocks act as a good bet. Both, resale value of the property and rental income, rise with price inflation.

Apartment Rent and Occupancy Hit Record Highs

Residential and commercial real estate rents are strongly rebounding this year, after last year’s plunge due to the pandemic. Apartment rent and occupancy hit new records in November, even as the rental market entering its traditionally sluggish season. Apartment occupancy hit a new high of 97.5% in November, according to RealPage, a real estate technology platform, as quoted on CNBC. The annual increase in asking rents for new move-in leases hit 13.9%.

Uptick in Home Prices is a Boon for Renters

“The rental market is actually stronger than the for-sale market right now,” said one real estate industry observer, quoted on CNBC. This is possible due to extremely high home prices, which are up nearly 20% year over year. Thanks to extremely low mortgage rates, demand for homes is high. But higher demand for home buying as well as lack of labor and land has boosted home prices. This is a great scenario for renters.

Along with some analysts, we too believe that fast-rising home prices are likely to keep prospective homebuyers away from the ownership and direct them toward the rental market. “Homeownership is still dead in this country because the only people that are buying homes right now are people that have equity, great credit and a job,” multi-family housing investor Grant Cardone told Yahoo Finance, quoted on an article (read: Real Estate ETFs at All-Time Highs: Here's Why).

Booming Cloud Business and Rollout of 5G

A stupendous tech rally has been aiding the data center REITs in recent times. Data center REITs own and manage facilities that aid customers to safely store data. These REITs provide continued power supplies, air-cooled chillers and physical security.

Meanwhile, cell-tower REITs area has been a beneficiary of the rapid rollout of 5G. Investors should note that increased consumption of mobile data has been boosting this space.

Real Estates Are Lucrative Amid a Low-Yield Environment

If these are not enough, a general low-rate environment is great for real estate stocks and ETFs as these are high-yielding in nature. The benchmark U.S. 10-year treasury yield was 1.48% on Dec 21. Against such a low-yield backdrop, dividends offered by real estate ETFs are quite sturdy.

Some of the decent real estate ETF plays right now are VanEck Vectors Mortgage REIT Income ETF (MORT Quick QuoteMORT - Free Report) (yields 7.10% annually), Global X SuperDividend REIT ETF (SRET Quick QuoteSRET - Free Report) (yields 6.29% annually) and Invesco KBW Premium Yield Equity REIT ETF (KBWY Quick QuoteKBWY - Free Report) (yields 5.52% annually).