3 Residential REITs Set to Gain From Strong Sector Fundamentals
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 and Equity Trust - Residential Industry's Future?
Solid Rental Demand: The U.S. residential real estate market continues to benefit from strong fundamentals, driven by high demand that supports both occupancy and rent growth. This momentum is expected to persist throughout the year. Contributing factors include a resilient labor market with low unemployment, along with demographic shifts that are accelerating household formation. Additionally, elevated mortgage rates and rising homeownership costs are making it harder for renters to transition into owning, positioning rental housing as a more accessible and flexible option. The relative unaffordability of single-family homes further strengthens the outlook for multifamily residential landlords. Technological Initiatives: Residential REITs have been embracing innovations such as self-guided tours, digital move-ins, smart home features and AI-powered tools to improve tenant experiences, boost efficiency and reduce costs. These tech-driven strategies position them to stay competitive, meet changing market expectations and support long-term growth in net operating income as the industry continues to evolve in the digital era.Macroeconomic Headwinds: Broader economic headwinds are adding pressure to the residential real estate market. Macroeconomic uncertainty and the impact of tariffs create stress in the labor market, which affects consumer confidence and financial stability, both critical drivers of household formation. Although inflation remains somewhat contained, concerns persist about the ripple effects of tariffs on consumers and the housing sector. These dynamics may weigh on renter affordability and investor sentiment.Elevated Supply of New Apartment Units: While the U.S. multifamily market shows strong overall performance, regional imbalances remain evident. Certain regions are dealing with excess supply, which is tempering rental rates despite solid demand. As a result, operators are prioritizing occupancy to maintain steady cash flow, a strategy expected to continue in the near term. Although new construction is decelerating, potentially paving the way for improved rent and occupancy trends, many markets still face short to mid-term oversupply challenges. These imbalances are likely to restrain rent growth until demand catches up, limiting the near-term upside but setting the stage for healthier fundamentals over the long run.
Zacks Industry Rank Indicates Bright Prospects
The REIT and Equity Trust - Residential industry is housed within the broader Finance sector. It carries a Zacks Industry Rank #92, which places it in the top 38% 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 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 two to one.
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 & 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 returned 0.5% during this period compared with the S&P 500's increase of 9.6%. The broader Finance sector has gained 19.5%.
One-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 16.46 compared with the S&P 500's forward 12-month price-to-earnings (P/E) of 21.89. However, the industry is trading above the Finance sector's forward 12-month P/E of 16.11. 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 26.19 and as low as 13.61, with a median of 17.30.
3 Residential REITs to Buy
Veris Residential: This REIT primarily owns, operates, acquires and develops premier Class A multifamily properties in supply-constrained, high-demand Northeast markets. With NOI and rental growth outperforming a number of peers, Veris is executing a strategy to unlock value through targeted asset sales, capital recycling and portfolio optimization. Its Jersey City assets benefit from favorable demographics and rising rents, while rebranding and renovation initiatives like Liberty Towers deliver strong ROI. Veris Residential currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its 2025 and 2026 FFO per share has been revised upward over the past week to 62 cents and 72 cents, suggesting 3.3% and 16.1% year-over-year growth, respectively. With the company's shares declining 9.3% in the past three months, it provides a good entry point for investors. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Elme Communities: This is a multifamily REIT with a portfolio of around 9,400 apartment homes concentrated in the Washington, DC, metro and the Atlanta metro regions. In addition to its residential assets, the company owns roughly 300,000 square feet of commercial space. Elme Communities offers an attractive investment opportunity through its focus on value-oriented multifamily assets in high-demand, supply-constrained markets like Washington, D.C., and Atlanta. With around 3,000 units in its renovation pipeline and a projected $2.4-$2.6 million net operating income upside in 2025, Elme is positioned for strong operational growth. Its fully unencumbered, investment-grade balance sheet, consistent rent-to-income affordability and price insulation from new supply add further resilience, making Elme a compelling play on stable, long-term multifamily housing demand.Elme Communities currently carries a Zacks Rank of 2. The Zacks Consensus Estimate for the current-year FFO per share of 95 cents suggests a 1.1% year-over-year increase, backed by 2.8% growth in revenues. The company's shares have risen 4.4% so far in the year.
NexPoint Residential Trust: This residential REIT targets middle-income, multifamily properties with value-add potential in major cities and suburban areas across the Southeastern and Southwestern U.S. It focuses on well-located assets where it can deploy capital to enhance units with modern, lifestyle-oriented amenities.
NexPoint Residential Trust offers investors pure-play exposure to value-added, middle-income multifamily assets in high-growth Sunbelt markets. NXRT's renovation strategy consistently delivers high ROI and rent premiums, while its properties remain affordably priced relative to new supply. Its strong Sunbelt demographics, manageable new supply and rent growth upside make NXRT a compelling long-term multifamily housing investment.NXRT currently carries a Zacks Rank #2. The Zacks Consensus Estimate for its 2025 and 2026 FFO per share has been revised upward 1.6% and 3.7%, respectively, to $3.24 and $3.12. The company's shares have gained 1.1% in the past month and offer a good entry point.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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NexPoint Residential Trust, Inc. (NXRT) : Free Stock Analysis Report
Veris Residential, Inc. (VRE) : Free Stock Analysis Report
Elme Communities (ELME) : Free Stock Analysis Report
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