The outlook for real estate is brighter in 2025, according to many on Wall Street. After a rough couple of years, it is “the dawn of a new cycle” for real estate investment trusts, according to Citi. The firm expects REITs, which typically pay dividends, to have a total return of 10% to 15% in 2025 thanks to accelerating year-over-year earnings growth, lower supply deliveries, a solid macroeconomic backdrop and reasonable valuations. “As compared to prior years, we believe there will be mostly stable rates at the same time as an acceleration in fundamentals — and solid fundamentals could persist and strengthen given the dearth of new supply for the next few years,” Citi analyst Nick Joseph wrote in a note last week. The iShares U.S. Real Estate ETF (IYR) , which tracks U.S. equities in the real estate sector, has a total return of more than 8% in 2024. IYR YTD mountain iShares US Real Estate ETF (IYR) in 2024 Bank of America is also bullish on REITs, noting that the stocks are trading near record-low relative multiples and that 50% of real estate stocks offer a higher yield than 10-year bonds. In addition, the proportion of the S & P 500 real estate sector with a B+ or higher S & P quality rating has doubled over the past decade to 70%, said analyst Jeffrey Spector in a Dec. 6 note. “Overall, we believe the 2025 backdrop is positive for REIT fundamentals,” he wrote, noting that the bank’s economic team expects healthy gross-domestic-product growth. “Supply is forecast to be lower in ’25 with potentially historic lows in ’26,” Spector added. “Additionally, public REITs maintain a cost of capital and access to capital advantage over private owners, and stable interest rates may provide enough visibility to fuel transactions with the gap between buyers & sellers narrowing.” Signs of strength One sign of potential strength in REITs is coming from the uptick in transactions seen in CBRE’s U.S. real estate transaction volumes, according to Janus Henderson. That increase is usually a good sign of an inflection point in the cycle, the firm said. “The recovery in transactions … highlights multiple avenues for REITs to boost earnings growth, strengthening the outlook for asset values, and ultimately, the potential for higher share prices and growing dividends in a new cycle,” a Nov. 11 report from Janus portfolio managers Greg Kuhl and Danny Greenberger said. Kuhl thinks 2025 will be mostly about fundamentals, which he said can help drive valuations higher. While there has been speculation about potential policies from the Trump administration next year driving inflation higher, he thinks it is premature to be investing around that theory at this stage. “I think a lot of that got priced into in the weeks and months leading up to the election,” said Kuhl, who manages the firm’s U.S. Real Estate ETF (JRE) along with Greenberger. His base case is the 10-year Treasury yield will stick around the range it has been in. Therefore, you can get about a 9% total return, he said. JRE 1Y mountain Janus Henderson U.S. Real Estate ETF “So growth, plus dividend,” he said. “If you layer on some undervalued stocks that you could pick on top of that, that’s additional return.” Where to invest Still, not all REITs are created equal, and some areas are more favorable than others. Citi, which is overweight in the health care, residential, industrial and infrastructure sectors, said stock picking will continue to be a driver of alpha. It has a REIT model portfolio that maintains overweight weight positions in a mix of sectors. Here are some of the holdings in that portfolio. Health-care REITs are a popular pick among analysts and investors right now. Janus Henderson thinks the biggest opportunity right now is specifically within senior housing. The population is aging at the same time that there is a supply issue, Kuhl of Janus explained. “There is literally almost nothing being built in the country for those right now,” he said. “At the same time, you’ve got this huge tailwind of demand that is very visible and is going to happen. So that’s a really good story.” Welltower , which owns and develops senior housing, skilled nursing/post-acute care facilities and medical office buildings, is among the top holdings in JRE. Kuhl also sees opportunities in data centers, which will benefit from the artificial-intelligence boom. JRE’s top holding is data-center company Equinix . In addition to the opportunities in data centers and health care, there is value to be found in retail, according to Steve Brown, senior portfolio manager at American Century Investments. He specifically likes open-air, grocery-anchored shopping centers. Demand is great and there is very little construction, he said. “Occupancy is going up in shopping centers and asking rents are going up, and really very little store closings or bankruptcies,” said Brown, who manages the firm’s Real Estate Fund (REACX) . “Public companies are reasonably priced compared to other property sectors because it’s still not considered a hot asset class.” He likes Regency Centers and Urban Edge Properties . He also likes Simon Property Group in the mall subsector, because occupancies and rents are going up and there is no new supply. Bank of America is also overweight health care and retail. “We’re laser focused on REITs with the best earnings visibility, highest growth prospects and where Street estimates are rising,” Bank of America’s Spector said. “While we do believe a barbell approach is most appropriate between quality and value, we do favor REITs with strong and flexible balance sheets who can drive external growth in 2025.” Here are some of the firm’s top picks for 2025. American Healthcare owns a diversified portfolio of healthcare assets, including senior housing, skilled nursing facilities and medical offices. Spector thinks the company, which went public in February, will benefit from the senior housing trade due to the aging of America. Within residential, he likes American Homes 4 Rent . “We remain positive on AMH’s portfolio, limited new supply of single-family homes, structural demographic tailwinds with aging millennials, accretive consolidation/development opportunities, and strong management,” Spector said. “Elevated mortgage rates are also a benefit to single family rental REITs.”