Amid the “neutral” ratings for most other REIT sectors, there's one with a “negative” outlook. That would be mall REITs, for which the analysts expect continued pressure on sales.

“Investors are likely to focus on the extent of rent concessions landlords may give tenants in order to maintain occupancy,” the Barclays Capital analysts write. “We still expect rent concessions to increase in 2017 as retailers prune their store bases and as landlords try to minimize downtime between struggling brands closing stores and healthy/growing brands opening stores.” Against this backdrop, malls covered by Barclays Capital actually are near peak occupancy at an average of 96%, although the traditional softline apparel retailers that populate them are facing headwinds, both competitive and secular.

Within the retail sector generally, the outlook is neutral. “Generally, we believe investors remain defensive and we continue to prefer larger-cap, high-quality names,” such as Kimco and Simon Property Group, “whose longer-term growth outlook and valuations remain attractive on a relative basis,' the Barclays Capital report states.

Still a favored asset class when it comes to investment sales, apartments as a REIT category have modestly underperformed the broader RMZ in the stock market thus far this year, Smotrich and his colleagues write. Despite attractive valuations, “we believe appreciation will be challenging through the balance of 2017 as new supply continues to impact pricing power. Though we have a Neutral view on apartments overall, we recognize that the dedicated REIT investor could favor multifamily in a rising rate environment, as shorter lease durations (one year) serve as an effective inflation hedge.”

The office sector is less inured to macroeconomic factors, yet the Barclays Capital analysts note that office REITs year to date have slightly outperformed the RMZ while lagging the S&P 500. “On a cash flow multiple basis, office REITs look elevated,” the analyst write. “On an NAV basis, however, office REITs are still trading at a greater discount (-7%) versus the RMZ (-4%) on similar earnings growth expectations (five-year estimate roughly ~5%). Even so, within their “neutral” outlook for office, the Barclays Capital analysts expect more of the same “consistent organic growth” the sector experienced in 2016.

Barclays

NEW YORK CITY—First-quarter reports have begun to appear from publicly traded REITs, and Barclays Capital isn't expecting any major surprise to emerge by the time earnings season is done. Analysts with the firm maintain a “neutral” outlook for REITs as a whole, as well as for most property sectors, with a couple of notable exceptions.

In a way, the two exceptions to the rule have something in common: technology. Reaffirming their “positive” outlook for industrial REITs, the Barclays Capital analysts note that although more than half of Q1's groundbreakings occurred in just five markets—Dallas, Philadelphia, Atlanta, Inland Empire and Denver—“these markets are also seeing significant new demand from 3PL companies and e-commerce supply chain build-out.”

As a consequence, according to the firm's preview of earnings season, “national vacancy fell in 75% of US markets during 1Q17 and is essentially at record lows.” Moreover, they write that nationally for industrial, “construction levels are on the rise, but much of the space is either pre-leased or filled soon after completion.”

The other sector for which Barclays Capital assign a positive outlook to REITs is technology. “Last year's momentum for the data center REITs appears to have continued into 2017,” the report states. Led by Ross Smotrich, the team of Barclays Capital analysts report that data center REIT stocks returned 9.5% in Q1 versus flatness in the MSCI US REIT Index (RMZ) for the quarter, “as private institutional capital continues to invest in data centers amid rapidly growing technology utilization.”

Amid the “neutral” ratings for most other REIT sectors, there's one with a “negative” outlook. That would be mall REITs, for which the analysts expect continued pressure on sales.

“Investors are likely to focus on the extent of rent concessions landlords may give tenants in order to maintain occupancy,” the Barclays Capital analysts write. “We still expect rent concessions to increase in 2017 as retailers prune their store bases and as landlords try to minimize downtime between struggling brands closing stores and healthy/growing brands opening stores.” Against this backdrop, malls covered by Barclays Capital actually are near peak occupancy at an average of 96%, although the traditional softline apparel retailers that populate them are facing headwinds, both competitive and secular.

Within the retail sector generally, the outlook is neutral. “Generally, we believe investors remain defensive and we continue to prefer larger-cap, high-quality names,” such as Kimco and Simon Property Group, “whose longer-term growth outlook and valuations remain attractive on a relative basis,' the Barclays Capital report states.

Still a favored asset class when it comes to investment sales, apartments as a REIT category have modestly underperformed the broader RMZ in the stock market thus far this year, Smotrich and his colleagues write. Despite attractive valuations, “we believe appreciation will be challenging through the balance of 2017 as new supply continues to impact pricing power. Though we have a Neutral view on apartments overall, we recognize that the dedicated REIT investor could favor multifamily in a rising rate environment, as shorter lease durations (one year) serve as an effective inflation hedge.”

The office sector is less inured to macroeconomic factors, yet the Barclays Capital analysts note that office REITs year to date have slightly outperformed the RMZ while lagging the S&P 500. “On a cash flow multiple basis, office REITs look elevated,” the analyst write. “On an NAV basis, however, office REITs are still trading at a greater discount (-7%) versus the RMZ (-4%) on similar earnings growth expectations (five-year estimate roughly ~5%). Even so, within their “neutral” outlook for office, the Barclays Capital analysts expect more of the same “consistent organic growth” the sector experienced in 2016.