2 Residential REITs to Consider Despite Persistent Market Headwinds

The Zacks REIT and Equity Trust - Residential industry is facing short-term headwinds from excess supply and uneven demand across markets. Concessions remain elevated in competitive areas, rent growth lacks consistency and rising operating costs are weighing on margins. As a result, revenue and cash flow growth are increasingly tied to execution and portfolio positioning.

Over the longer term, fundamentals remain supportive. Renting continues to be the most viable housing option amid limited for-sale inventory and elevated home prices, supporting occupancy and renewals. Solid household formation, higher retention, asset upgrades and demand from AI- and knowledge-based workers should aid stability, positioning players like Equity Residential EQR and Equity LifeStyle Properties ELS for durable growth.

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. 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?

Persistent Supply Glut and Patchy Demand to Limit Near-Term Pricing Strength: A pullback in new construction hasn’t fully eased supply pressures, as the market continues to absorb a wave of deliveries. This situation is expected to linger, leading to uneven pricing strength across different portfolios. Landlords will likely prioritize maintaining occupancy levels, with incentives remaining common in more competitive submarkets, especially for newer properties. Revenue growth is likely to vary widely, influenced by asset mix and lease rollover timing. Softer demand in tourism-driven markets is expected to continue amid choppiness in discretionary consumer spending, limiting the sector’s near-term ability to push rents consistently.

Elevated Costs Shift the Spotlight to Operational Discipline: Even as rent growth moderates, operating expenses remain sticky, constraining cash flow expansion in a slower revenue environment. Cost controls can help, but margin pressure is likely to persist. As a result, the focus for investors is moving beyond demand trends toward execution quality. REITs that can rein in expenses, allocate capital efficiently to existing properties and stay disciplined on new development will be better positioned to navigate this phase. In contrast, those relying primarily on rent increases may find it difficult to drive meaningful earnings growth until pricing power improves more convincingly.

Affordability Constraints and Workforce Trends Support Occupancy and Retention: A major tailwind for residential REITs is that renting remains the most accessible housing choice for many households. Elevated home prices, tight for-sale inventory and high mortgage rates continue to limit the transition to homeownership. Even if rates ease, affordability challenges are likely to persist in the near term. Meanwhile, household formation stays solid, with more individuals opting to live independently rather than share housing. This trend helps sustain occupancy levels and supports lease renewals. Landlords are investing in upgrades and enhanced tenant services, which improve retention and help keep cash flows relatively stable during periods of modest rent growth.

Another supportive factor is the growth of AI-driven and knowledge-based jobs. Professionals in these sectors typically earn higher incomes, boosting demand in tech-focused coastal markets. At the same time, renters across income groups are prioritizing stability, opting to renew leases rather than relocate amid economic uncertainty and rising moving costs. For residential REITs, this trend has led to stronger retention, helping sustain occupancy levels and protect revenues even as pricing on new leases remains under pressure. Student housing pre-leasing for Fall 2026 rebounded strongly in January after a slow start.

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 #177, which places it in the bottom 27% 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. Over the past year, the industry’s FFO per share estimates for 2026 have moved 0.9% south, and the same for 2027 have declined 2.7%.

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 and 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 16.7% during this period against the S&P 500’s increase of 21.3%. The broader Finance sector has risen 8.2%.

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 14.34 compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.57. The industry is also trading below the Finance sector’s forward 12-month P/E of 15.39. This is 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 26.60 and as low as 13.83, with a median of 16.99.

2 Residential REITs to Consider

Equity Residential: This residential REIT is focused on affluent urban and suburban rental markets. The company owns about 312 communities comprising more than 85,000 units across 12 key U.S. markets, with a balanced 51% urban and 49% suburban mix. Its portfolio is concentrated in high-barrier coastal and growth markets, with roughly 30% of NOI from New York and San Francisco, while residents show strong purchasing power with average household income of about $177,000.

In 2025, same-store revenues rose 2.6% and same-store NOI increased 2.2%. Physical occupancy remained healthy at around 96.4%, highlighting consistent leasing strength. Backed by high-quality urban assets, resilient occupancy, strong balance sheet and disciplined capital recycling, Equity Residential offers investors a stable income profile with modest, predictable growth.

Equity Residential currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2026 FFO per share suggests a year-over-year increase of 2.51%. The consensus mark for 2027 FFO per share calls for 4.05% year-over-year growth. The company’s shares have declined 1.9% in the past three months, narrower than the industry’s drop of 2.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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. As of year-end 2025, the company owned 453 properties with more than 173,000 sites across the United States and British Columbia. 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.

The company’s geographically diversified footprint and focus on lifestyle-oriented communities support consistent demand and long-term cash flow visibility. The company also benefits from strong resident retention and limited new supply in its core segments, supporting pricing power and stable cash flows, making it a reliable income-focused REIT.

The Zacks Consensus Estimate for 2026 FFO per share of $3.18 indicates a 3.92% increase year over year. The consensus mark for 2027 FFO per share has been revised upward over the past two months to $3.37, implying a 5.74% year-over-year rise. The company’s shares have risen 10.1% in the past three months. Equity Lifestyle currently carries a Zacks Rank of 3.



Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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