Three members of Citi’s global real estate research team—Nick Joseph in the United States, Aaron Guy in the U.K., and Howard Penny in Australia—joined the latest episode of the Nareit REIT Report podcast to share their thoughts on regional outlooks and sector performance.
Macro fundamentals, interest rates, and geopolitical sentiment are mixed globally, resulting in stock preferences that are heavily driven by regional teams’ micro analysis, Joseph said.
The key driver behind Citi’s list of most preferred stocks in 2025 is the presence of positive rental growth, with rental growth weakness and high valuation the key reasons for the least preferred subsectors. Sector preferences are not globally consistent, Joseph stressed, highlighting the presence of significant local supply and demand drivers.
Regionally, Citi is most positive on the U.S., Australia, Europe, the Philippines, and Indonesia, and more cautious on China, Latin America, India, Japan, Singapore, Hong Kong, and Thailand.
In the U.S., Citi is forecasting total REIT returns of 10%-15% this year, with a preference towards the residential, health care, and industrial sectors.
Expectations for earnings growth for U.S. REITs are being driven by stabilizing operating results, acquisition, development, and redevelopment benefits, and the retention of free cash flow. “Some sectors and companies have the green light for external growth, so that could be an additional driver of earnings growth this year,” Joseph said.
In Australia, Penny noted the expectation is for interest rate cuts to begin as early as this month. “We are expecting this decrease in the interest rate environment to provide a more supportive valuation environment for our real estate stocks,” he said.
A backdrop of lower interest rates could provide a more supportive environment for transaction activity, Penny said. “We do believe we're getting close to the bottom in valuations. That supportive environment will start to attract capital from around the world,” he added.
Meanwhile, Guy noted that for the past year Citi has been upgrading estimates and recommendations for European and U.K. real estate, based on rental growth, cost control, easing of cost inflation, and interest rate improvement. “We're increasingly and gradually sort of positive on the U.K. and European sector, which is a nice change,” he said.