The Zacks REIT and Equity Trust - Retail industry constituents are expected to benefit from the balanced market dynamics, urban revival and evolving retail strategies. A resilient consumer environment and limited new construction support stable demand, with high-quality locations continuing to outperform. Suburban centers attract investors, while urban corridors are likely to be revitalized by experiential and mixed-use developments. Omnichannel strategies are expected to continue to enhance physical stores’ roles. Regency Centers Corporation REG, Brixmor Property Group Inc. BRX and Tanger Inc. SKT are expected to continue to benefit.
However, e-commerce growth, policy impacts and elevated interest rates challenge retailers and retail REITs, highlighting vulnerabilities like store closures and financial pressures.
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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?
Balanced Market Dynamics, Urban Revival and Experiential Retail: Retail REITs are expected to continue benefiting from a resilient consumer environment, limited new construction and a stable tenant base, with demand supported by traditional retail, consumer services and cross-border entrants. Although store expansions have slowed, rent growth is stabilizing, creating opportunities for tenants. However, high-quality locations continue to outperform due to the persistent "flight to quality" trend. While suburban shopping centers are continuing to attract investors, urban retail corridors are rebounding as people return to cities to live, work and play. Experiential retail, aimed at increasing foot traffic and engagement, is likely to play a key role in urban revitalization. Also, mixed-use developments, blending retail, residential and entertainment, are becoming pivotal in revitalizing urban spaces and driving vibrancy.
Technological Integration and Omnichannel Strategies: Omnichannel retailing has become central for retailers, including digitally-native brands expanding physical locations to enhance customer connections. This approach enables customers to inspect products in-store, reducing costly online returns and protecting margins. Strategies like Buy Online/Return In Store (BORIS) improve convenience, streamline logistics and boost in-store sales. Physical stores are now critical hubs supporting digital channels, highlighting their evolving role in complementing e-commerce and reinforcing the importance of seamless customer experiences across platforms.
Limited Supply and Adaptive Redevelopment: Due to high construction costs and a focus on repurposing underperforming assets, the supply of retail space has been constrained. Moreover, retail REITs are focusing on tenant mix diversification and integrating healthcare providers, fitness centers and recreational services in their rosters, which helps stabilize rental income. Also, retail REITs are focusing on redevelopments and asset conversions to optimize operational performance and attract investors.
E-commerce Penetration and Macroeconomic Policies: E-commerce growth continues to challenge brick-and-mortar retailers and their landlords despite the adoption of omnichannel strategies. The convenience of online shopping discourages some retailers from expanding physical locations, reducing demand for retail spaces. Tariff impositions further strain retailers relying on low-cost imports, compounding financial pressures and increasing the risk of store closures, rising vacancies and diminished cash flows for retail REITs. Inflationary effects from tariffs and other policies could compel the Federal Reserve to maintain elevated interest rates, which adversely impacts rate-sensitive retail REITs. Heavily reliant on debt, these REITs face heightened investor skepticism during high borrowing costs.
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 #75, which places it in the top 30% of more than 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.
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 17% during this period compared with the S&P 500’s rise of 32% and the broader Finance sector’s growth of 28.5%.
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 17.15X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 22.82X. The industry is also trading below the Finance sector’s forward 12-month P/E of 17.70X. 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 18.88X and as low as 10.42X, with a median of 15.12X.
3 Retail REIT Stocks to Bet On
Regency Centers Corporation: Headquartered in Jacksonville, FL, Regency Centers is engaged in the ownership, operation and development of shopping centers in suburban trade areas with appealing demographics. Its tenant roster includes productive grocers, restaurants, service providers and top-notch retailers.
Regency’s strategically located shopping centers in affluent suburban areas and near urban trade areas enable it to attract top grocers and retailers and position it well to ride the growth curve. Its focus on grocery-anchored shopping centers assures dependable traffic, aiding occupancy levels and rent growth. Further, accretive buyouts, an encouraging development pipeline and a solid balance sheet are likely to drive long-term growth.
Regency Centers currently carries a Zacks Rank #2 (Buy). Over the past two months, the Zacks Consensus Estimate for the current-year and 2025 FFO per share has witnessed upward revisions to $4.26 and $4.45, calling for a 2.7% and 4.5% increase year over year, respectively. The stock has appreciated 22% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Brixmor: Based in New York, this REIT specializes in owning and operating a nationwide portfolio of open-air shopping centers. Its properties host a diverse mix of thriving national, regional and local retailers.
BRX's shopping centers are strategically located near residential neighborhoods, serving as convenient last-mile distribution hubs. The portfolio is thoughtfully designed to include non-discretionary and value-focused retailers alongside consumer-oriented service providers.
Brixmor currently carries a Zacks Rank #2. Over the past two months, the Zacks Consensus Estimate for the current-year FFO per share has witnessed a marginal upward revision to $2.14, indicating a 4.9% year-over-year rise. The stock has also risen 9.1% over the past three months.
Tanger: Headquartered in Greensboro, NC, this REIT specializes in owning and operating outlets and open-air retail shopping destinations, leveraging more than 43 years of industry expertise. Its portfolio includes 38 outlet centers, one adjacent managed center and one open-air lifestyle center, collectively spanning more than 15 million square feet. These properties are strategically situated in tourist destinations and thriving markets across 20 U.S. states and Canada.
With most of SKT’s portfolio consisting of open-air formats, it offers brands and retailers a compelling and integral sales channel. Consumers are drawn to the company’s centers for branded merchandise at consistent value. As open-air centers continue to gain popularity, Tanger is well-positioned to benefit from the strong fundamentals of the retail real estate market. The company maintains a robust balance sheet, including no significant maturities until late 2026, and ample liquidity.
SKT currently holds a Zacks Rank #2. The Zacks Consensus Estimate for the company’s 2024 and 2025 FFO per share has been revised marginally upward over the past month to $2.11 and $2.22, which suggests year-over-year growth of 7.7% and 5.5%, respectively. The stock has risen 18.5% over 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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