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About the Industry
The Zacks REIT and Equity Trust - Residential category includes companies that own, develop and manage various residential properties, such as apartment buildings, student housing, manufactured homes and single-family homes. These REITs generate revenues by renting spaces to tenants. While most residential REITs lease properties like apartments and single-family homes to a broad range of tenants, student housing is exclusively leased to students. As a result, student housing properties are typically located near colleges and universities to serve their target demographic. Moreover, the demand for student housing is closely tied to enrollment growth at educational institutions, making it a key driver for this market segment. Some residential REITs may focus on specific regions or types of housing to better address local market dynamics or serve particular tenant demographics.
What's Shaping the REIT & Equity Trust - Residential Industry's Future?
Supply Overhang and Uneven Demand Will Cap Near-Term Pricing Power: Despite a slowdown in new construction starts, the sector is still digesting a large volume of recent deliveries. This supply overhang will take time to absorb, keeping pricing power inconsistent across portfolios. Owners are likely to remain focused on defending occupancy, with concessions persisting in more competitive submarkets, particularly for newer assets. As a result, revenue growth is likely to remain uneven, with performance depending heavily on portfolio mix and lease timing. Adding to this challenge, slower immigration trends could weigh on household formation in certain areas, while tourism-dependent markets may see softer demand if discretionary spending weakens.
Cost Pressures Keep the Focus on Execution and Discipline: While rent growth has softened, expenses have not been nearly as cooperative, limiting how much cash flow growth REITs can generate in a low-growth revenue environment. Even with better cost controls and some tax relief showing up in pockets, margins are likely to stay under pressure. This matters for the future because it shifts the investment debate away from pure demand strength and toward execution. REITs that can manage expenses, invest efficiently in existing assets and avoid overbuilding risk will be better positioned. Those that rely too heavily on rent growth alone may struggle to expand earnings until pricing improves more meaningfully.
Renting Stays the More Accessible Housing Option for a Growing Share of Households: A key support for residential REITs is that renting continues to be the most practical housing option for many households. High borrowing costs, limited for-sale supply and elevated home prices are keeping homeownership out of reach for a large segment of renters. Even if interest rates move lower, affordability gaps are unlikely to narrow quickly. At the same time, household formation remains healthy, with many renters choosing to live independently rather than doubling up. This dynamic supports steady occupancy and strong renewal activity. Owners have also leaned into property upgrades and better resident services, reinforcing retention and helping stabilize cash flows during periods of slower rent growth.
In addition, tailwind comes from the expansion of AI and knowledge-based employment. Renters tied to these fields have stronger incomes and are helping certain markets. At the same time, renters across income levels are showing a preference for stability, choosing renewals over moving amid economic uncertainty and rising relocation costs. For residential REITs, this has translated into elevated retention rates that help protect occupancy and revenues even when new-lease pricing is under pressure.
Zacks Industry Rank Indicates Bleak Prospects
The REIT and Equity Trust - Residential industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #168, which places it in the bottom 31% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim 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 two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the downward 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 losing confidence in this group’s growth potential. While over the past year, the industry’s FFO per share estimates for 2025 have moved 0.6% north, the same for 2026 have gone 3.4% south.
However, before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock market performance and valuation picture first.
Industry Underperforms Sector & S&P 500
The Zacks REIT and Equity Trust - Residential industry has underperformed the broader Zacks Finance sector and the S&P 500 composite over the past year.
The industry has declined 8.4% during this period against the S&P 500’s increase of 19.5%. The broader Finance sector has also risen 19.2%.
1-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-FFO ratio, which is a commonly used multiple for valuing residential REITs, we see that the industry is currently trading at 14.89 compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 23.36. The industry is also trading below the Finance sector’s forward 12-month P/E of 17.70. This is shown in the chart below.
Forward 12-Month Price-to-FFO (P/FFO) Ratio
2 Residential REITs to Consider
Equity LifeStyle Properties: This residential REIT owns and operates a diversified portfolio of manufactured home communities, recreational vehicle resorts, campgrounds and marinas across North America. It focuses on high-quality coastal and Sunbelt retirement and vacation destinations and urban areas.
Equity Lifestyle is well-positioned to capitalize on strong demand fueled by affordable housing needs, favorable demographics, particularly from baby boomers, along with additional support from future generations. Furthermore, the United States has seen minimal manufactured home development over the past two decades.
The Zacks Consensus Estimate for 2025 FFO per share of $3.06 indicates a 5.2% increase year over year. The consensus mark for 2026 FFO per share has been revised upward over the past two months to $3.20, implying a 4.74% year-over-year increase. The company’s shares have declined 4.9% in the past three months. Equity Lifestyle currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Veris Residential currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its 2025 FFO per share has been revised 3% north to 69 cents in the past two months. Moreover, the consensus mark for 2026 FFO per share has been revised marginally upward over the same time frame and calls for 2.9% year-over-year growth. The company’s shares have gained 3.1% in the past three months.
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This article originally published on Zacks Investment Research (zacks.com).
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