3 Retail REITs to Consider Amid Growing Optimism in the Industry

The Zacks REIT and Equity Trust - Retail industry constituents are poised to benefit from supportive market fundamentals and adaptive strategies. Strong consumer spending and constrained new supply support the market dynamics, while top-tier retail locations continue to lead performance. Physical stores remain essential, bolstered by omnichannel integration and the growing popularity of experiential retail aimed at driving engagement and traffic. Against this backdrop, Realty Income Corporation O, Kimco Realty Corporation KIM and Essential Properties Realty Trust, Inc. EPRT stand to gain. Still, the rise of e-commerce, policy shifts and high interest rates present challenges, including financial strain and potential store closures.

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?

Sound Market Forces and Experiential Retail Transformation: Retail REITs are set to benefit from resilient consumer spending, limited new construction and a stable tenant mix, with demand supported by traditional retail, service providers and cross-border entrants. The ongoing “flight to quality” continues to drive outperformance at prime locations. Experiential retail is playing an increasingly vital role in enhancing foot traffic and customer engagement. By incorporating entertainment, dining and interactive features, retail spaces are becoming immersive environments that extend visit durations and boost sales. This evolution reflects a broader shift toward experience-driven shopping, where physical stores serve as both commerce hubs and engagement platforms. Additionally, mixed-use developments that combine retail with residential and entertainment components are revitalizing urban areas and creating vibrant, multi-purpose destinations. These strategies not only attract diverse tenants and consumers but also reinforce the long-term appeal and adaptability of physical retail real estate.

Digital Transformation and Omnichannel Growth: Omnichannel retailing has become central for retailers, with even digitally-native brands increasingly establishing physical storefronts to deepen customer engagement. This model allows shoppers to experience products firsthand, helping reduce expensive online returns and safeguard profit margins. As a result, brick-and-mortar locations have evolved into vital extensions of digital platforms, underscoring their growing role in creating seamless, integrated shopping experiences.

Supply Shortages and Strategic Property Revamps: High construction expenses, labor constraints and stricter lending conditions have continued to limit new development activity. Moreover, strategic repurposing of underperforming properties has limited new retail space development. This is heightening competition for prime, well-located properties. At the same time, retail REITs are enhancing portfolio resilience by diversifying tenant mixes and incorporating non-traditional occupants such as healthcare providers, gyms and entertainment venues. These efforts support stable rental income. Additionally, many REITs are prioritizing redevelopment and asset conversions to boost operational efficiency and appeal to investors.

E-commerce Penetration and Macroeconomic Policies: E-commerce growth continues to pressure brick-and-mortar retailers and their landlords despite increased adoption of omnichannel strategies. The convenience of online shopping has reduced the need for physical store expansion, limiting retail space demand. Tariffs on low-cost imports further strain retailers’ margins, increasing the risk of store closures and vacancies, weakening retail REIT cash flows. Inflation driven by tariffs and other policies may dampen consumer spending and prompt the Fed to maintain higher interest rates. Given their reliance on debt, retail REITs face added pressure from elevated borrowing costs, fueling investor caution and impacting valuation and growth prospects.

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 #81, which places it in the top 33% 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 1.2% and 1.1% 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 advanced 6.5% during this period compared with the S&P 500’s rise of 11.4% and the broader Finance sector’s growth of 19.4%.

One-Year Price Performance

Industry's Current Valuation

On the basis of 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 15.25X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.83X. The industry is also trading below the Finance sector’s forward 12-month P/E of 16.21X. 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

Realty Income: The REIT is mainly engaged in the acquisition and management of freestanding commercial properties that generate rental revenues under long-term net lease agreements.

Realty Income remains a top-tier dividend play, combining reliable income with long-term growth prospects. Its stable cash flows are underpinned by a well-diversified tenant base and a long-term net lease model, which prioritizes tenants in essential, low-price-point sectors. This structure adds resilience and visibility to its revenue stream. The company’s strategic shift into alternative property types, such as gaming, as well as its foray into data centers through its collaboration with Digital Realty, reflects a proactive, future-oriented growth strategy. Coupled with a strong balance sheet and investment-grade credit profile, Realty Income is positioned to navigate evolving market conditions effectively. 

Realty Income currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 FFO per share has been raised marginally upward over the past month to $4.28, indicating a 2.15% year-over-year increase. Moreover, the consensus estimate for 2026 FFO per share has moved marginally northward over the past month and calls for a 3.02% increase year over year. The stock has risen 4.5% so far in the year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Kimco Realty: Jericho, NY-based Kimco Realty is a leading publicly traded owner and operator of open-air, grocery-anchored shopping centers and mixed-use assets in the United States.

Kimco is well-positioned to gain from its portfolio of premium shopping centers, which are predominantly grocery-anchored and are in the drivable first-ring suburbs of its top major metropolitan Sunbelt and coastal markets, having several growth levers like high employment and strong spending power. A diversified tenant base assures stable cash flows. This retail REIT’s focus on developing mixed-use assets that serve the last mile bodes well for growth. A solid balance sheet position will support its growth endeavors.

Currently, Kimco carries a Zacks Rank #3. The Zacks Consensus Estimate for this year’s FFO per share has been revised marginally upward to $1.73 over the past month, indicating a year-on-year improvement of 4.85%. The consensus mark for 2026 FFO per share has been revised upward marginally over the past two months to $1.78 also indicates 3.39% projected growth year over year. The stock has inched up 0.8% in the past month.

Essential Properties: This Princeton, NJ-headquartered REIT is engaged in the ownership, acquisition and management of mainly single-tenant properties, which are net leased to service-oriented and experience-based businesses on a long-term basis. 

The company serves car washes, early childhood education, medical/dental, quick-service, automotive service, entertainment, casual dining, equipment rental and sales sectors. This focus on service-oriented and experience-based tenants helps generate stable rental cash flows, as such businesses are less susceptible to competition from Internet retailing. With a weighted average lease term of 14 years and an average unit-level rent coverage ratio of 3.5 as of March 31, 2025, EPRT is well-poised to ride the growth curve. 

Essential Properties currently carries a Zacks Rank #3. The Zacks Consensus Estimate for 2025 FFO per share of $1.91 suggests a 9.8% increase year over year. The consensus mark for 2026 FFO per share has been revised upward marginally over the past month to $2.06 and also indicates 7.9% projected growth year over year. The stock has risen 3.2% so far in the year.

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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Kimco Realty Corporation (KIM): Free Stock Analysis Report
 
Realty Income Corporation (O): Free Stock Analysis Report
 
Essential Properties Realty Trust, Inc. (EPRT): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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