3 Residential REITs Worth Considering as the Industry Recovers

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. 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 & Equity Trust - Residential Industry's Future?

Falling New Supply Is Improving the Industry’s Setup: Residential REITs are expected to benefit from a more balanced supply environment as apartment development slows. In recent years, landlords faced strong competition from newly completed properties, which limited rent growth and increased the need for concessions. With financing and construction conditions making new projects more difficult to justify, future apartment supply is likely to grow at a slower pace. This is expected to gradually reduce competitive pressure on existing properties. While markets that experienced heavy development in recent times, such as the SunBelt markets, may need more time to absorb recently completed units, a smaller future pipeline could improve their long-term position. With renter demand remaining stable while supply growth moderates, landlords are likely to gain greater flexibility to maintain occupancy, reduce incentives and improve pricing power. For residential REITs, this creates a more favorable operating setup and could support stronger property-level performance as supply and demand move toward a healthier balance. Student housing pre-leasing remains healthy for Fall 2026, supported by steady demand.

Resident Retention Supports Stable Revenues: Strong occupancy and resident retention are providing residential REITs with an important source of stability. Keeping existing tenants is helping landlords maintain dependable rental income while reducing the costs associated with vacancies, apartment turnover, marketing and leasing incentives. This is especially valuable with pricing on new leases remaining relatively weak because renewals can help offset some of that pressure. High retention is also allowing operators to prioritize occupancy rather than pushing rents aggressively in uncertain markets. At the same time, management is focused on improving portfolio quality and financial flexibility through selective property sales, acquisitions, debt reduction and share repurchases. The combination of AvalonBay Communities and Equity Residential into Vivmark Residential (VMRK) highlights the industry's push toward greater scale, cost efficiencies, and stronger competitive positioning. 

New Lease Pricing and NOI Recovery Remain Uneven: Although apartment fundamentals are improving, the recovery in residential REIT earnings may take longer to develop. Higher occupancy is not immediately resulting in stronger revenues or property-level income, particularly when landlords are still facing weak pricing on new leases. Many landlords are preferring to protect occupancy rather than raise rents aggressively, which supports stability but is limiting near-term earnings growth. The continued difference between healthy renewal pricing and weaker new leases suggests tenants retain bargaining power where available units remain plentiful. As a result, the recovery is likely to unfold gradually rather than accelerate quickly. Coastal portfolios could remain better positioned because limited construction supports pricing, while Sunbelt and growth-oriented markets may require additional time to absorb excess supply. This creates an uneven operating environment across the sector.

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 #96, which places it in the top 39% 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 us take a look at the industry’s recent stock market performance and valuation picture first.

Industry Underperforms Sector and 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 declined 5.1% during this period against the S&P 500’s rise of 21.3%. The broader Finance sector has risen 12.1%.

1-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 15.50 compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 20.37. The industry is also trading below the Finance sector’s forward 12-month P/E of 16.83. 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 26.17 and as low as 13.02, with a median of 16.60.

3 Residential REITs to Consider

American Homes 4 Rent: This is a leading U.S. single-family rental REIT with an integrated model spanning development, leasing and property management. Its portfolio is concentrated in high-growth markets and totaled 60,482 homes as of June 30, 2026. AMH also has an in-house development platform, giving it greater control over product quality, community design and portfolio expansion.

AMH’s scale, occupancy and development capabilities support an attractive growth profile. Same-home occupancy was 96% in second-quarter 2026, reflecting demand, while the company delivered 651 built, energy-efficient homes during the quarter. Its pipeline included 5,738 owned or optioned lots, providing capacity for future growth.

With an integrated operating platform, disciplined expansion and exposure to markets benefiting from household formation and limited affordable housing supply, AMH is well positioned to compound rental income and portfolio value.

The Zacks Consensus Estimate for 2026 FFO per share of $1.95 indicates a 4.28% increase year over year. The consensus mark for 2027 FFO per share has been revised upward over the past month to $2.03, implying a 3.95% year-over-year rise. The company’s shares have risen 6.4% over the past three months. American Homes 4 Rent currently carries a Zacks Rank of 2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Essex Property Trust, Inc.: This is a multifamily REIT focused exclusively on high-barrier West Coast markets, primarily Northern and Southern California and Seattle. Its portfolio spans eight markets, 258 apartment communities and more than 62,000 homes, with 85% of NOI generated from suburban assets. Essex combines scale, local market expertise and an integrated operating platform to own, develop and enhance well-located apartment communities.

ESS benefits from limited new housing supply, high homeownership costs and strong household incomes across its markets, supporting durable rental demand. The portfolio’s median household income is about $136,000, while buying a home costs 2.5 times renting.

Operationally, same-property occupancy remained strong at 96.3% in second-quarter 2026, with revenues and NOI up 2.7% and 2.6%, respectively. These fundamentals reinforce Essex’s long-term rent growth and cash flow potential.

Essex Property currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2026 FFO per share suggests a year-over-year increase of 1.51%. The consensus mark for 2027 FFO per share calls for 3.11% year-over-year growth. The company’s shares have gained 4.4% over the past three months.

Equity LifeStyle Properties: This is a self-administered, self-managed REIT focused on manufactured home communities, RV resorts and marinas. As of June 30, 2026, ELS owned or held interests in 453 properties spanning 35 U.S. states and British Columbia, comprising 173,559 sites. Its diversified portfolio serves long-term residents and leisure customers, providing recurring rental and membership-based revenue streams.

ELS benefits from scale, attractive lifestyle-oriented real estate and resilient demand across housing and outdoor recreation. The company’s core portfolio delivered 6.5% growth in property operating income in second-quarter 2026, while manufactured-home base rental income increased 5.8%. Its balance sheet is supportive, with debt representing just 20.5% of total market capitalization and interest coverage of 5.6 times. These strengths position ELS to compound cash flows through rent growth, occupancy and disciplined portfolio investment.

The Zacks Consensus Estimate for 2026 FFO per share of $3.20 indicates a 4.58% increase year over year. The consensus mark for 2027 FFO per share of $3.37 implies a 5.47% year-over-year rise. The company’s shares have risen 3% over the past three months. Equity Lifestyle currently carries a Zacks Rank of 3.  



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.

Beyond Nvidia: AI's Second Wave Is Here

The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research