REIT Earnings Season: Searching for the Bottom, Betting on the Bounce

Hotel & Office REIT Earnings Preview

Office: Concerns over softening labor markets have taken the wind out of the sails of the long-struggling office sector that was just beginning to show signs of life in early 2025. Results last quarter were surprisingly strong - and generally overlooked by the market - with office REITs notching over 10k square feet of leasing volume for the second time in three quarters - activity that roughly matched pre-pandemic levels. Brokerage firm Jones Lang LaSalle (JLL) published its quarterly office sector update last week, which showed further encouraging trends over the past several months. JLL reports that office vacancy rates declined for the first time since early 2019 in the third quarter, with vacancy falling 5 bps to 22.5%, snapping a prolonged slump in which overall national vacancy rates have nearly doubled. A rebound in leasing activity in Q3 prompted the inflection, with JLL tracking 52.4M SF of leasing - just below its post-pandemic highs - and representing 82% of pre-pandemic levels. The leasing rebound has corresponded closely with the ongoing recovery in office attendance, which JLL notes hit a fresh post-pandemic high in July at 80% of pre-pandemic levels. Supply growth has been essentially nonexistent in recent quarters, however, as overall U.S. office inventory declined by another 1.2M SF in Q3 as deliveries continue to be offset by inventory removals for conversion and redevelopment. We're focused primarily on leasing volumes, commentary on any recent changes in demand, and the potential bottom in occupancy rates.

Hotel: The most economically sensitive property sectors will be the most closely watched this earnings season for insights into how consumers and businesses are responding to recent economic volatility. Despite the recession-level sentiment readings on Michigan Consumer Confidence and Business Sentiment surveys throughout much of the year, travel demand has held up surprisingly well in recent months, but recent high-frequency indicators suggest some emerging softness at the margins over the past several months. TSA Checkpoint data shows that passenger throughput was about 6% above 2019 levels in September - marking the softest month of 2025 - and down from the +8% average in the first-half of the year. Hotel data provider STR reports that industry-wide Revenue Per Available Room ("RevPAR") declined -1.4% on a year-over-year basis in Q3 (still up 12% versus 2019), as recent weakness in occupancy rates offset still-solid pricing trends. Hotel REITs have been among the laggards this year - and again trade with single-digit P/FFO multiples - suggesting that quite a bit of weakness is already priced in, providing a relatively low hurdle if results are reasonably steady.

Residential Real Estate Earnings Preview

Apartments: After an early-year upward inflection in residential rent growth, recent data have suggested that multifamily fundamentals have again softened at the margins in recent months. Robust demand in prior quarters helped to offset the effects of record-setting new supply growth, but RealPage's report last week indicated "sluggishness" in the third-quarter, reflecting headwinds from slowing job growth and likley some impacts from a reversal in net immigration trends. RealPage tracked 637k units of absorption in the year-ending 3rd quarter 2025 - down notably from the 785k units absorbed in the prior quarter. Softer fundamentals resulted in a -0.3% decline in effective asking rents - the first time rents have been cut between July and September since 2009, whilch dragged the year-over-year rate to -0.1%. Data from ApartmentList showed similar softness, with national rents declining 0.3% year-over-year in September - the second-straight monthly decline after six-straight months of increases earlier in the year. Zillow's latest report this week showed that national rent growth cooled to 2.0% in September - the lowest since early 2021. Sunbelt markets - which saw a boom in new development during the pandemic - have dragged on the downside, while the more supply-constrained Northeast and Midwest markets have seen rather robust rent growth of 3-5% over the past quarter. Importantly, however, the reports agree that the crest in supply growth is finally here, with the quantity of new units declining for a third straight quarter and an expectation of "rapidly declining delivery volumes" in the quarters ahead. We'll be closely watching rent growth metrics on new and renewed leases, commentary on the financial health of their renters, and the outlook for supply growth.

Single-Family Rentals: Supply growth has remained more contained on the single-family side throughout the pandemic era, but SFRs have not been entirely immune to the supply pressure on the multifamily side, nor from the effects of slowing labor markets. Cotality reported last week that single-family rental markets showed "new signs of weakness" in the latest report covering trends through July. Single-family rents increased 2.3% on a year-over-year basis in July, continuing a slowdown from the 3-5% range seen through all of 2023 and 2024. Cotality noted annual rent growth softening across all of its price tiers during the summer - softness that was previously isolated primarily to the lower-end market. Among the largest 10 metros, Chicago posted the highest rent growth at 5.1%, while the New York metro remained in the second spot with rent growth at 3.7%. Philadelphia, Los Angeles, and Washington, D.C. rounded out the top five locations with rent growth. Matching the trends seen in the multifamily space, Sunbelt SFR markets have been notably soft in recent quarters. Miami - which posted incredible rent growth early in the pandemic - posted the lowest rent growth over the past year at 0%. The two SFR REIT portfolios are skewed towards the mid-to-upper tier of the market but also have a heavy presence in the Sunbelt. Expenses remain the "wild card" for these REITs - especially as it relates to insurance and property taxes. In addition to rent growth metrics and expense controls, we're interested in commentary about these external growth prospects.

Storage: Self-storage demand is closely correlated with housing market turnover - existing home sales and apartment turnover rates - both of which have been around multi-decade lows over the past two years. Results from self-storage REITs last several quarters showed that soft fundamentals dragged into the back-half of 2025, as muted housing market activity and elevated supply growth have kept downward pressure on new lease rates. Muted move-out activity - and relatively buoyant low-single-digit rent growth on existing tenants - has helped to offset the considerable weakness in new lease rates, as all four storage REITs reported a twelfth-straight quarter of negative "Street Rate" (new lease) spreads, which has slowly started to bleed into the overall average rent metrics. Recent data in the PPI report and online search trends provide some reasons for optimism, however, with both indicating some modest firming in demand trends and rental rates in recent months. Yardi's monthly report showed that Street Rates turned modestly positive in September, rising 0.9% year-over-year, marking the first month of incremental growth after nearly three years of rate declines. Yardi notes that Midwest metros continued to outperform, driven by strong multifamily fundamentals and increasingly limited new supply. We're focused on commentary on Street Rate trends from these REITs for confirmation on whether supply/demand conditions are beginning to materially improve.

Tech and Industrial REITs Earnings Preview

Industrial: Industrial REITs are off to a blazing-hot start to third-quarter earnings season, with results from the initial trio of logistics REITs last week showing a material rebound in leasing demand following a tariff-impacted "pause" earlier in the year. Prologis (PLD) – the largest industrial REIT – has surged since kicking off earnings season with a surprisingly strong report and raising its full-year outlook, fueled by record-setting leasing activity. Reporting similar "beat and raise" results were Rexford (REXR) - which focuses on the Southern California market - and First Industrial (FR) - which focuses on Midwest and Sunbelt markets. Prologis boosted its guide for national-level absorption to 125M SF (up from 90M last quarter), and roughly maintained its supply outlook at 190M SF, noting that development starts are 75% below peak and running 25% below pre COVID levels. PLD noted that national rents declined 1% in Q3, a moderation from the 3% pace of rent declines in the first-half of the year and far better than the 7% declines in full-year 2024, with PLD highlighting continued strength in the Southeast and Texas, but also early signs of improvement in the struggling Southern California market. Commentary indicated that PLD expects market rents to remain flat to slightly negative over the next several quarters as vacancy rates hover around 7.5%, but noted that “demand has clearly turned a corner, and the market is at an inflection period here..” On tariffs, PLD noted, “Customers have become more desensitized to the short-term noise as they look at making long-term decisions,” particularly larger size companies. For the balance of the reports, we're focused on rent spreads and leasing volume.

Data Center: Data Center REITs were the top-performing sector in 2023 and 2024 amid insatiable AI-driven demand for compute space, but have lagged this year amid renewed questions over their longer-term competitive positioning relative to the cash-rich hyperscalers. The near-term outlook remains quite favorable, with recent data indicating a reacceleration in leasing activity from the hyperscalers over the past quarter after a slowdown in early 2025. TD Cowen reported this week that hyperscale demand hit a historic peak of 7.4 gigawatts of leasing activity, which is more than all of 2024 combined. Oracle - historically in the "second-tier" of hyperscalers behind Google, Amazon, and Microsoft - fueled the increase in Q3, which Cohen views as a "dramatic inflection point" in data center demand. The report bodes well for Digital Realty (DLR) and Equinix (EQIX) - and squares with data from JLL last month, which noted that vacancy rates are effectively 0% in the critical colocation segment - the primary focus of these data center REITs. JLL notes that the construction pipeline of 8 GW is 73% preleased - significantly above the historical averages of around 50%, "signaling that any meaningful loosening of market conditions remains a few years away at minimum." We'll be focused on leasing volumes and pricing, and on commentary regarding any shift in competitive dynamics as AI demand grows.

Cell Towers: The weakest-performing property sector from 2022-2024 amid a telecommunications industry-wide slump inflamed by tight monetary conditions and new competition from satellite offerings, cell tower REITs were the performance-leader in the first-half of this year, but have hit the skids once again over the past quarter after a major deal in the telecom space effectively consolidated the domestic carrier industry down to three major players for the foreseeable future. Cell carrier AT&T (T) announced a $23B deal with EchoStar (SATS) - parent of Dish Network - to buy the majority of its wireless spectrum, a move that effectively ends Dish's ambitions to become the fourth major cell carrier. While few predicted that Dish would become a competitive fourth carrier on its own, there was hope that it could carve out a legitimate niche and/or partner with an existing cable or satellite company. While Dish is a small percent of total revenues for cell tower REITs - ranging from 2% to 6% - it had been a welcome source of new business for these REITs, and this deal adds to concern that a consolidated carrier industry will further impact pricing power. Commentary from the major cellular carriers has generally been more positive of late, with industry-wide CapEx trending to re-accelerate in 2025. Still, the shadow competition from the ever-improving service of Starlink cannot be ignored. A seemingly impossible feat when initially discussed in the late 2010s, Starlink has deployed roughly 8,000 low-earth-orbit satellites in five years - each serving as a "mini cell tower" - providing blanket worldwide coverage. Macro cell towers aren't going away anytime soon, but Starlink has significantly altered the competitive dynamic in the telecom space. We'll be keyed-in on commentary regarding the impacts of the Dish spectrum sales.

Healthcare REIT Earnings Preview

Senior Housing: The top-performing sector in 2024, Senior Housing and Skilled Nursing REITs have continued the strong run deep into 2025, as recent data shows a continued recovery in occupancy rates alongside historically strong rent growth. Industry data provider NIC published its quarterly Market Fundamentals report last week, which showed that senior housing occupancy rates increased for the 17th consecutive quarter to 88.7%, which is 10.9 percentage points above its pandemic low of 77.8% seen in the second quarter of 2021. The skilled nursing occupancy rate, meanwhile, rose to 86.3% in the most recent quarter, up 11.6 percentage points from its pandemic low of 74.7%. Fueled by tailwinds from record-setting COLA adjustments in 2023 and 2024, rent growth across both Senior Housing and Skilled Nursing facilities has remained historically strong in recent years - continuing to hover around 4.0%. Supply growth remains muted as well, with NIC noting that the rolling four-quarter average for construction starts sits at 0.9% of total inventory - the lowest since 2010. These tailwinds bode well for tenant financial health and rent coverage, which remains the primary focus. We'll also be keyed-in on commentary regarding external growth plans and potential M&A, with these REITs continuing to trade at healthy premiums to Net Asset Value.

Medical Office: While their healthcare REIT peers in the senior housing and skilled nursing space have surged in recent years with +75% average cumulative three-year returns, Medical Office Building ("MOB") REITs have generally gone nowhere with total returns that are roughly flat during this stretch. Despite being one of the most rate-sensitive segments, these REITs haven't yet enjoyed the valuation "bump" seen by their peers, which remains a bit head-scratching given the relatively steady property-level fundamentals. JLL's latest report, published last quarter concludes, "[MOB] fundamentals remain strong, and construction starts remain slow, positioning medical outpatient buildings for increasing occupancy and rental rate growth, driving increased allocation from capital rotating from other asset classes." Despite steady demand, construction starts for MOBs have remained below pre-pandemic averages over the past three years. MOB REITs have a relatively low hurdle to meet this earnings season, and we'll be watching same-store metrics, tenant renewal rates, and lease volume growth.

Retail REITs Earnings Preview

Strip Centers & Malls: Following a period of modest softening in net retail space demand in the first half of this year after a very strong 2024, recent data has indicated some better trends over the past quarter. Cushman & Wakefield's report this week noted that net absorption of retail space improved in the third quarter after a notably weak start to 2025. Net absorption turned marginally positive in Q3 at +323k SF, which followed the two worst quarters since the pandemic. Year-to-date absoprtion losses remain at -13.1M SF, however, which is still on track to be the first year of negative demand since 2020. The report notes that retail vacancy rates are higher by 50 basis points from last year, but remain near historic lows at 5.8%, "an encouraging sign that retailers are not aggressively downsizing their store footprints in aggregate." The marginally softer leasing environment has cooled rent growth from the robust pace above 4% in 2024, slowing to 1.7% in Q3, but the report notes that the recent slowing is concentrated in lower-tier locations, with "extreme scarcity and higher rent growth persisting in top locations."

The latest data from Coresight shows that store closings have outpaced store openings by about 2,000 this year through the first half of 2025, but this is a significantly better pace than their initial outlook calling for 9k net store closings this year. The increase in store closings this year has been driven by a handful of recent bankruptcies - including Rite Aid, Jo Ann, Forever 21, Party City, and Conn's - along with announced store reductions from Family Dollar, CVS, Walgreens, Seven-11, and Big Lots. Retail REIT fundamentals improved substantially in 2023 and 2024, as the combination of near-zero new development and positive net store openings has driven occupancy rates to record highs and allowed both Strip Center and Mall REITs to enjoy some long-awaited pricing power. We'll be focused on leasing spreads and occupancy rate trends, and commentary on any changes in the tone of leasing discussions with retailers in recent months as they shape plans for 2026.

Mortgage REIT Earnings Preview

Mortgage REITs have no excuse for underperformance this quarter amid a very favorable macroeconomic backdrop for RMBS and CMBS valuations - pacing to be one of the strongest years on record after a half-decade of relative weakness. The iShares MBS ETF (MBB) - which tracks the unlevered performance of residential mortgage-backed securities ("RMBS") - posted total returns of 2.4% in Q3, which lifted its year-to-date total returns to +8.1% (including the +1.2% returns thus far in October). The iShares CMBS ETF (CMBS) - which tracks the unlevered performance of commercial mortgage-backed securities ("CMBS") - posted total returns of 1.6% in Q3, lifting its full-year total returns to a very strong +7.2% (including the +0.7% returns thus far in October). RMBS spreads tightened 6 basis points during the quarter, while CMBS spreads tightened by 9 basis points - both hovering around their pandemic-era lows. Benchmark interest rates - as measured by the 10-Year Treasury Yield - also provided a valuation boost, retreating by 8 basis points during the quarter and dipping by another 20 bps thus far in October. Given this valuation backdrop, for residential mortgage REITs, we expect a +4-6% average increase in BVPS in Q3 (vs. -4.0% YTD), and for commercial mREITs, we expect a 2-4% average increase in BVPS (vs. -3% YTD).

Key Takeaways: Real Estate Earnings Preview

Real estate earnings season kicks into gear this week, and over the next month, we'll hear results from 175 equity REITs, 40 mortgage REITs, and dozens of housing industry companies. Notable favorable "green shoots" gleaned from recent data: 1) rebound in logistics leasing after tariff-related pause; 2) reacceleration in hyperscale data center leasing; 3) recovery in office leasing amid return-to-work; and 4) positive inflection in self-storage fundamentals. Weaker trends include: 1) sluggish multifamily and SFR rents - especially in the Sunbelt - after a first-half reacceleration; 2) softening hotel demand in economy/mid-tier segments; 3) cell industry consolidation driving uncertainty; and 4) a measured cooldown from historically strong retail fundamentals. Our baseline forecast for this quarter is that 70% of REITs will raise their full-year FFO outlook, 25% will maintain their outlook, and 5% will lower their outlook - above the typical third-quarter "beat rate" of around 65%. We'll provide real-time updates throughout earnings season in our Daily Recaps, Weekly Reports, and in the Chat Board.

About the Author

David Auerbach boasts over two decades of experience in the securities industry, specializing as an institutional trader with a focus on Real Estate Investment Trusts (REITs), Equity and Preferred stocks, MLPs, ETFs, and Closed End Funds.

Based in Dallas, TX throughout his entire career, David currently serves as the Chief Investment Officer for Hoya Capital, managing the Hoya Housing 100 ETF (Ticker: HOMZ) and The High Yield Dividend ETF (Ticker: RIET). Previously, David held the position of Managing Director at Armada ETF Advisors, the sub-advisor for the Residential REIT ETF (Ticker: HAUS) and The Private Real Estate Strategy via Liquid REITs ETF (Ticker: PRVT).

Additionally, he acts as a consultant with IRRealized, LLC, focusing on corporate access in the REIT industry. David's industry journey includes roles at World Equity Group, Esposito Securities, and Green Street Advisors where he got his start in the REIT industry.

At Esposito Securities, he played a crucial role in building the REIT/Real Estate platform and worked extensively with institutional investors, Equity REITs, and ETF issuers.

Throughout his career, David has been quoted by reputable publications such as Bloomberg, WSJ, Financial Times, REIT.com, and GlobeSt.com. He has also made notable appearances as a featured guest on networks like Yahoo Finance, TD Ameritrade, and Bloomberg.

David holds a BBA in Finance from the University of Texas at Austin (May 1999) and an MBA in Finance from Southern Methodist University (May 2005). He maintains FINRA Series 7, 24, 55, and 63 registrations.

In his leisure time, David is an avid traveler, often found crisscrossing the country in pursuit of attending as many Phish concerts as possible.

Disclaimer

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.