Empire State Realty Trust Swallows Downside as Returns Falter

Five risk flags and a high‑volatility regime raise concerns about future performance

ESRT Empire State Realty Trust, Inc.

In this report

01

Returns Overview

Period returns, alpha, cumulative performance, distributions

P. 2-3

→

02

Volatility Analysis

Annualized volatility, downside deviation, drawdowns

P. 4-5

→

03

Beta & Correlation

Trailing, upside, downside beta, systematic risk

P. 6-7

→

04

Risk-Adjusted Returns

Sharpe, Sortino, Calmar, Information, Treynor

P. 8-9

→

05

Market Regime Analysis

Bull/bear behavior, capture ratios

P. 10-11

→

06

Investment Highlights & Risk Summary

Executive summary, risk flags, rankings

P. 12-13

→

Returns Overview

Empire State Realty Trust, Inc. (ESRT) — Return Performance

Empire State Realty Trust (ESRT) has underperformed its XLRE peer group across all horizons, delivering a cumulative return of -8.03% over the past month versus a sector alpha of -5.44% and a sector-adjusted shortfall of -9.64%. The divergence widens at longer intervals, with 1‑year returns of -34.53% (alpha -53.53%, short‑adjusted -44.47%) and a 5‑year total loss of -52.86%, reflecting an alpha lag of -124.68% relative to the sector benchmark.

Period Returns vs S&P 500 & XLRE

Monthly Returns Heatmap

ESRT

The stock has generated negative alpha in every time frame, indicating systematic underperformance versus XLRE; short‑term (1M) weakness is modestly less severe than long‑term (5Y) decay. The widening gap from -5.44% monthly alpha to -124.68% over five years suggests persistent structural challenges rather than temporary market noise.

Returns Overview

Empire State Realty Trust, Inc. (ESRT) — Return Charts

Volatility Analysis

Empire State Realty Trust, Inc. (ESRT) — Volatility Profile

Empire State Realty Trust (ESRT) exhibits markedly higher price variability than the broader market, with an annualized volatility of 34.25% versus the S&P 500's 17.78%, indicating roughly double the fluctuation magnitude. The stock's downside risk profile is pronounced: a downside deviation of 23.86% and a historical maximum drawdown of -73.12% over a ten‑year window underscore substantial vulnerability during market stress, with the drawdown persisting for nearly a decade without full recovery. While short‑term volatility (30.56% over 60 days) is modestly below the long‑run average (32.52% over 252 days), the overall risk characteristics remain elevated relative to the benchmark.

Volatility Metrics

ESRT

The company's volatility stands at 34.25% annualized, more than twice the S&P 500's 17.78%, reflecting a high‑beta exposure that can amplify both gains and losses. Downside metrics are concerning: a downside deviation of 23.86% signals that negative returns are significantly larger than positive ones, and the -73.12% max drawdown—spanning from September 2016 to March 2026 with no complete recovery—highlights deep, prolonged equity erosion during adverse cycles. Although the recent 60‑day volatility (30.56%) is slightly lower than the 252‑day average (32.52%), it remains well above market norms, suggesting that short‑term risk has not abated.

ESRT's annualized volatility of 34.25% is roughly double the S&P 500's level.
Downside deviation of 23.86% indicates a skew toward larger negative moves.
Maximum drawdown of -73.12% reflects extreme loss depth and a ten‑year recovery lag.
Short‑term (60‑day) volatility is marginally below the long‑term (252‑day) average, but both are elevated versus the benchmark.
The stock's risk profile remains high despite slight short‑term volatility easing.

Positive Characteristics
Recent 60‑day volatility has edged lower than the longer‑run 252‑day figure, hinting at a modest short‑term risk compression.

Volatility Analysis

Empire State Realty Trust, Inc. (ESRT) — Volatility & Drawdown Charts

Beta & Correlation

Empire State Realty Trust, Inc. (ESRT) — Beta Profile

Empire State Realty Trust (ESRT) exhibits a trailing beta of 0.946 versus the S&P 500, placing it squarely in the market‑like range (0.8‑1.2). This indicates that, on average, the stock moves roughly in tandem with broader equity markets, neither markedly defensive nor aggressively volatile. However, its upside beta of 0.871 and downside beta of 1.048 reveal an asymmetry: ESRT tends to fall more sharply than it rises during market swings, a pattern that risk‑aware investors should monitor, especially in downturn environments. The overall R-squared of 24.1% signals that only about one‑quarter of the stock’s returns are explained by market movements, leaving roughly three‑quarters driven by idiosyncratic factors, which underscores its potential for diversification benefits within a broader portfolio.

Beta & Correlation Metrics

ESRT

The trailing beta of 0.946 suggests ESRT behaves similarly to the S&P 500, offering exposure that mirrors general equity trends without the heightened volatility of aggressive stocks. The downside beta exceeding one (1.048) versus an upside beta below one (0.871) highlights a bias toward larger losses in falling markets, implying that risk managers should allocate a modest defensive buffer when market sentiment turns negative. With a sector beta of 1.025 and sector correlation of 0.593, ESRT is slightly more sensitive to Real Estate sector movements than the broader market, indicating that sector‑specific drivers—such as REIT pricing dynamics and interest‑rate shifts—play a notable role in its price behavior.

Trailing beta of 0.946 places ESRT in the market‑like risk category.
Downside beta (1.048) exceeds upside beta (0.871), indicating asymmetric downside sensitivity.
Only 24.1% of return variance is explained by the S&P 500, leaving 75.9% idiosyncratic.
Sector beta of 1.025 shows ESRT is marginally more reactive to XLRE movements than to the overall market.
Sector correlation (0.593) and sector R² (35.2%) suggest a moderate but not dominant influence from real‑estate sector trends.

Positive Characteristics
Market‑like beta provides exposure without extreme volatility, suitable for investors seeking equity participation with limited swing risk.
High idiosyncratic component (75.9%) offers diversification potential within multi‑asset portfolios.
Sector beta only slightly above one indicates that ESRT does not over‑amplify sector shocks relative to its peers.

Beta & Correlation

Empire State Realty Trust, Inc. (ESRT) — Rolling Beta

Positive Notes

Market‑like beta provides exposure without extreme volatility, suitable for investors seeking equity participation with limited swing risk.

High idiosyncratic component (75.9%) offers diversification potential within multi‑asset portfolios.

Sector beta only slightly above one indicates that ESRT does not over‑amplify sector shocks relative to its peers.

Risk-Adjusted Returns

Empire State Realty Trust, Inc. (ESRT) — Risk-Adjusted Performance

Empire State Realty Trust (ESRT) exhibits negative risk‑adjusted performance across all standard metrics, indicating that its total return has lagged the risk‑free rate while delivering substantial volatility. The Sharpe ratio of -0.198 and Sortino ratio of -0.284 both fall below zero, confirming underperformance on a risk‑adjusted basis and suggesting that downside risk is even more pronounced than overall volatility. Likewise, the Calmar ratio of -0.043 signals that the fund’s worst drawdown far outweighs any excess return, while an Information Ratio of -0.534 points to a consistent shortfall relative to its benchmark.

Risk-free rate: 3.63% (Fed Funds Rate)

Risk-Adjusted Metrics

ESRT

The Sharpe ratio of -0.198 indicates that ESRT’s total return is lower than the risk‑free rate after accounting for total volatility, while the more negative Sortino ratio (-0.284) reveals that downside volatility is a greater drag on performance. The Calmar ratio of -0.043 underscores severe drawdowns relative to any modest gains, implying limited upside potential in adverse market regimes. An Information Ratio of -0.534 further suggests that active management has not added value; the fund consistently underperforms its benchmark after adjusting for tracking error.

All risk‑adjusted metrics are negative, confirming underperformance versus the risk‑free rate.
Downside risk (Sortino) is worse than overall volatility (Sharpe), highlighting vulnerability to losses.
The Calmar ratio signals that maximum drawdowns dwarf any positive returns.
A negative Information Ratio indicates persistent alpha shortfall relative to the benchmark.

Positive Characteristics
None identified; metrics uniformly indicate adverse risk‑adjusted outcomes.

Risk-Adjusted Returns

Empire State Realty Trust, Inc. (ESRT) — Rolling Sharpe & Sortino

Positive Notes

None identified; metrics uniformly indicate adverse risk‑adjusted outcomes.

Market Regime Analysis

Empire State Realty Trust, Inc. (ESRT) — Regime Behavior

Empire State Realty Trust (ESRT) demonstrates pronounced sensitivity to market volatility regimes. In bull markets with low volatility the REIT generates modest returns of 0.35% per month, reflecting its reliance on stable economic conditions for occupancy and rent growth. Conversely, during bullish but high‑volatility periods it delivers a robust 1.99% monthly average, indicating that heightened market activity can translate into higher leasing activity and premium pricing for its flagship properties. In bear environments the stock underperforms sharply: a steep -7.07% monthly decline in orderly down markets and a still severe -3.40% drop when volatility spikes, underscoring vulnerability to macro‑economic stress and reduced tenant demand.

Current Market Regime: Bull-HighVol

Bull-LowVol = calm uptrend • Bull-HighVol = volatile uptrend • Bear-LowVol = orderly decline • Bear-HighVol = crisis

Regime Returns & Capture Ratios

ESRT

The REIT’s upside capture of 73.5% signals that it trails the S&P 500 during market rallies, especially in calm bull phases where its growth engine is muted. Its downside capture of 162.8% reveals a disproportionate loss relative to the broader market in downturns, confirming defensive weakness. The combined capture ratio of 0.45 (well below the ideal >1.0) quantifies this asymmetry: ESRT provides limited upside participation while exposing investors to amplified downside risk. With the S&P currently above its 50‑day SMA and realized volatility above median—i.e., a Bull‑HighVol regime—the stock’s recent 1.99% average monthly return suggests it may benefit from the ongoing market turbulence, but investors should remain cautious of the inherent volatility sensitivity.

Market Regime Analysis

Empire State Realty Trust, Inc. (ESRT) — Regime & Capture Charts

Regime Timeline

ESRT’s monthly returns swing dramatically across regimes, from +0.35% in Bull‑LowVol to -7.07% in Bear‑LowVol.
Upside capture (73.5%) is well below the S&P benchmark, indicating muted participation in market rallies.
Downside capture (162.8%) exceeds the market, reflecting heightened vulnerability during declines.
The overall capture ratio of 0.45 highlights a net negative risk‑adjusted profile; an ideal ratio would be >1.0.
Current Bull‑HighVol conditions align with ESRT’s strongest historical regime performance (+1.99% avg).

Positive Characteristics
In volatile bullish markets, ESRT delivers its highest average monthly return, suggesting it can capitalize on heightened economic activity and leasing demand.
The REIT’s exposure to premier New York City office assets provides a premium rental base that may support earnings if volatility stabilizes.

Investment Highlights & Risk Summary

Empire State Realty Trust, Inc. (ESRT) — Summary & Implications

Empire State Realty Trust (ESRT) has delivered a steep 1‑year total return of -34.53%, lagging the S&P 500 by 53.53 percentage points and underperforming its real‑estate peer group XLRE by 44.47%. The stock’s risk metrics underscore substantial downside pressure: annualized volatility of 34.25% far exceeds the S&P 500’s ~17%, a Sharpe ratio of -0.198 indicates returns below the risk‑free rate, and a max drawdown of -73.12% signals severe capital loss potential. Capture ratios reveal an asymmetric profile—upside capture of only 73.5% versus downside capture of 162.8%—meaning the business amplifies market declines while participating modestly in gains. Despite these challenges, ESRT’s beta of 0.946 suggests its price moves roughly in line with the broader market, offering a neutral directional exposure that could be useful for investors seeking real‑estate exposure without excessive systematic risk.

Summary Dashboard

Investment Highlights

Beta of 0.946 provides near‑market correlation, allowing the stock to serve as a proxy for overall equity movements while limiting amplified swings.
Upside capture of 73.5% indicates that in bullish periods ESRT participates in roughly three‑quarters of market gains, preserving some upside potential despite broader weakness.
Sector beta of 1.025 shows the real‑estate sector moves slightly more than the market, positioning ESRT to benefit if sector dynamics improve.

Risk-Return Rankings

ESRT HIGH

High volatility and deep drawdown dominate a neutral beta profile, resulting in an elevated risk‑return profile.

Strength: Neutral market beta (0.946) offers systematic exposure without excessive leverage.

Concern: Maximum drawdown of -73.12% and downside capture of 162.8% indicate severe loss potential.

Key Takeaways

The stock’s negative Sharpe (-0.198) and Sortino (-0.284) ratios confirm that risk‑adjusted returns are currently unattractive.
Downside capture exceeding 160% means ESRT magnifies market declines, a critical red flag for defensive investors.
Sector underperformance of 44.5% over the past year suggests broader real‑estate headwinds that may persist in the near term.
Neutral beta provides a baseline market exposure but does not compensate for the extreme downside asymmetry.

PORTFOLIO IMPLICATIONS

For portfolios seeking diversified equity exposure, ESRT could serve as a modestly correlated real‑estate component, but its high volatility and deep drawdown risk make it suitable only for investors with a high risk tolerance or those employing hedging strategies. Pairing ESRT with assets that exhibit low correlation to the broader market—such as short-duration bonds or defensive consumer staples—can mitigate its downside capture while preserving any upside participation during sector recoveries.

ESRT

Related Reports

Visit finexus.net/reports for more reports

Report written 2026-06-07 • Finexus

Disclaimer

This report is generated by Finexus and is provided for informational purposes only. It does not constitute investment advice, a recommendation, or an offer or solicitation to buy or sell any security.

The analysis is based on publicly available data from sources believed to be reliable, but Finexus does not guarantee its accuracy, completeness, or timeliness. Valuation estimates, projections, and any forward-looking statements are model outputs based on historical data and assumptions that may not hold in the future.

Past performance is not indicative of future results. Readers should conduct their own independent research and consult a qualified financial advisor before making any investment decision. Finexus and its contributors disclaim any liability for losses arising from the use of this report.