Top 3 Retail REITs to Watch as Industry Sentiment Strengthens

The Zacks REIT and Equity Trust - Retail industry constituents are well-positioned to capitalize on favorable market conditions and evolving strategies. Strong consumer spending and limited new development underpin healthy fundamentals, while high-performing retail hubs continue to attract tenants. The relevance of physical retail remains strong, supported by omnichannel models and experience-driven formats. Companies like Brixmor Property Group Inc. BRX, Phillips Edison & Company, Inc. PECO and Urban Edge Properties UE are poised to benefit. However, ongoing e-commerce expansion, shifting trade policies and elevated interest rates pose notable headwinds. These pressures may lead to tighter margins, increased financing costs and a potential uptick in store closures, underscoring the importance of a strategic tenant mix and capital discipline.

Industry Description

The Zacks REIT and Equity Trust - Retail industry comprises REITs that own, develop, manage and lease various retail properties, including regional malls, outlet centers, grocery-anchored shopping venues and power centers with big-box retailers. Net lease REITs focus on freestanding properties, where tenants bear rent and most operating expenses. Retail REIT performance is significantly impacted by economic conditions, employment levels and consumer spending trends. Key drivers of demand include the geographic location of properties and the demographics of surrounding trade areas. While the industry faced significant challenges from declining foot traffic, store closures and retailer bankruptcies in the past, it is now experiencing a rebound, driven by renewed consumer interest in in-store shopping, signaling a positive shift in the retail landscape.

What's Shaping the Future of the REIT and Equity Trust - Retail Industry?

Experiential Retail and Omnichannel Integration Are Revitalizing the Sector: Retail REITs are benefiting from the transformation of physical stores into immersive, experience-driven destinations. Experiential retail, incorporating dining, entertainment and interactive elements, is driving stronger foot traffic, longer visit durations and higher sales. This evolution aligns with changing consumer preferences that favor engagement over transactional shopping. Complementing this trend is the growth of omnichannel strategies, as retailers, including digitally-native brands, are establishing physical storefronts to reduce return costs and deepen customer relationships. Programs like Buy Online, Return In Store (“BORIS”) enhance convenience while boosting in-store traffic. Another key tailwind is solid leasing demand from consumer service providers and cross-border entrants expanding into U.S. markets. These tenant categories have shown resilience amid macroeconomic uncertainty, helping diversify the tenant base and drive long-term occupancy stability. Altogether, these factors are reinforcing the importance of brick-and-mortar assets in a digitally integrated retail environment.

Limited Supply and Strategic Revamps Support Fundamentals: Retail REITs are also benefiting from a structurally constrained supply pipeline. New construction remains limited due to elevated building costs, labor shortages and stricter financing conditions — factors that are unlikely to reverse quickly. As a result, national vacancy rates remain historically tight. This low supply environment supports continued rent growth, especially in prime locations. Many REITs are capitalizing on this low-supply environment by redeveloping and repurposing underperforming assets, often adding non-traditional tenants such as healthcare services, gyms or entertainment venues. Mixed-use developments are also gaining momentum, turning outdated retail sites into vibrant, community-oriented destinations. These strategies are reinforcing portfolio durability and improving rental income visibility across economic cycles.

Macroeconomic Volatility, E-Commerce Pressure and Tariffs Cast Shadows: Despite positive structural shifts, retail REITs face ongoing pressure from macroeconomic headwinds. High interest rates, inflation and tariff changes are prompting retailers to delay leasing decisions or scale back expansion plans. Store closures are now outpacing openings, and leasing activity is slowing. Rising e-commerce penetration dampens demand for traditional retail space, especially in commodity-driven segments. Tariffs on low-cost imports could further erode retailer profitability, limiting expansion plans and increasing the likelihood of further bankruptcies, leading to vacancy risk and challenging cash flow visibility for retail REITs in the near term.

Zacks Industry Rank Indicates Bright Prospects

The Zacks REIT and Equity Trust - Retail industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #69, which places it in the top 28% of around 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the upward funds from operations (FFO) per share outlook for the constituent companies in aggregate. Looking at the aggregate FFO per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential. Since March 2025, the industry’s FFO per share estimates for 2025 and 2026 have moved 1.64% and 0.2% north, respectively.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Underperforms Sector and S&P 500

The REIT and Equity Trust - Retail Industry has underperformed the broader Zacks Finance sector and the S&P 500 composite over the past year.

The industry has declined 5.5% during this period compared with the S&P 500’s rise of 19.4% and the broader Finance sector’s growth of 19.1%.

One-Year Price Performance

 

Industry's Current Valuation

On the basis of the forward 12-month price-to-FFO, which is a commonly used multiple for valuing retail REITs, we see that the industry is currently trading at 14.62X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 22.54X. The industry is also trading below the Finance sector’s forward 12-month P/E of 16.71X. These are shown in the chart below.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

Over the last five years, the industry has traded as high as 18.89X and as low as 12.21X, with a median of 15.19X.

3 Retail REIT Stocks to Consider

Brixmor: Headquartered in New York, this REIT focuses on the ownership and management of open-air shopping centers across the United States. Its portfolio features a well-balanced tenant base that includes flourishing national, regional and local retailers.

BRX’s shopping centers are strategically positioned near residential areas, offering convenient access and supporting last-mile distribution. The portfolio features a balanced tenant mix, combining non-discretionary and value-focused retailers with consumer-focused service providers, enhancing foot traffic and ensuring consistent demand across a variety of economic conditions.

Brixmor currently carries a Zacks Rank #2 (Buy). Over the past month, the Zacks Consensus Estimate for the current-year FFO per share has witnessed a marginal upward revision to $2.23, indicating a 4.7% year-over-year jump. The stock has also risen 3.7% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

Phillips Edison: PECO, based in Cincinnati, OH, specializes in the ownership and operation of high-quality, grocery-anchored neighborhood shopping centers. As of June 30, 2025, the company managed 327 shopping centers, including 303 wholly owned centers containing 34.0 million square feet across 31 states and 24 shopping centers owned in three institutional joint ventures.

PECO offers omnichannel grocery-anchored shopping experiences. It enjoys strong-credit neighbors and a diversified mix. With high-quality, necessity-based tenants and resilient foot traffic trends, PECO benefits from consistent demand. It is also among the REITs with the lowest tenant exposure to changes in tariff rates. Strong tenant retention, solid same store net operating growth, decent lease spreads, and consistent dividend income underscore its operational excellence and long-term value creation.

PECO currently carries a Zacks Rank #2. Over the past month, the Zacks Consensus Estimate for 2025 FFO per share has witnessed a 1.2% upward revision to $2.58, reflecting analysts’ bullish outlook. Though the stock has declined 5.6% over the past three months, it currently offers a good entry point.



Urban Edge Properties: This New York-based company is engaged in the owning, managing, acquiring, developing and redeveloping retail real estate in urban communities, primarily in the Washington, DC to Boston corridor. Its properties are concentrated in the most densely populated, supply-constrained region in the country, assuring a steady flow of traffic.

Also, a large portion of Urban Edge’s portfolio is anchored by high-performing essential retailers, which ensures stable cash flows. Particularly, 80% of portfolio value is grocery-anchored. It has a healthy balance sheet, with only 8% of debt maturing through 2026. It targets long-term FFO growth of 4-5% annually, supported by a strong lease pipeline (≈9% of NOI) and strategic redevelopment and capital recycling.

UE currently has a Zacks Rank #2. The Zacks Consensus Estimate for its 2025 FFO per share has been raised 1.4% over the past month to $1.40, indicating a 3.7% year-over-year increase. The stock has rallied 6.8% in the past three months.




Note: Funds from operations (FFO) is a widely used metric to gauge the performance of REITs rather than net income as it indicates cash flow from their operations. FFO is obtained after adding depreciation and amortization to earnings and subtracting the gains on sales.

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Urban Edge Properties (UE): Free Stock Analysis Report
 
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This article originally published on Zacks Investment Research (zacks.com).

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