Fitch: Outlook for Equity REITs is Deteriorating

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Fitch Ratings, New York, said the outlook for U.S. equity real estate investment trusts in 2024 is deteriorating.

“Fitch does not anticipate a recession in 2024, [but] still weaker conditions are likely,” Fitch said in its Equity REITs Outlook 2024 (subscription). “Hesitation by market participants is widespread as inflation persists and monetary authorities’ efforts to tamp inflation down with higher borrowing rates is occurring among a growing number of disconcerting global events.”

The report noted banks and other lenders tightened or nearly halted activity due to two challenges: higher interest rates and banking sector turmoil, especially in the first half of 2023. “This led buyers that otherwise may have been active in commercial real estate to largely step back from transaction activity,” Fitch said. “Given this narrative, investors assessed REITs capital indiscriminately and punitively, with investment-grade debt trading below par and equities mainly priced at discounts to net asset value.”

Fitch said it believes investment-grade REITs that have low leverage and healthy liquidity will be well positioned to acquire premium properties at discounted prices next year, “as sources of capital remain expensive and scarce for poorly capitalized owners and developers.”