The Morningstar analyst is also cautious on self-storage REITs, and REZ’s portfolio has about 50% of its holdings allocated toward self-storage companies.
Nevertheless, Lukasik believes there may be some value in the retail REITs space. The iShares Retail Real Estate Capped ETF (NYSEArca: RTL) is the only retail-focused real estate ETF on the market. RTL has increased 12.5% year-to-date and comes with a 3.03% 12-month yield.
Potential investors, though, should be aware that iShares is planning to shutter FNIO and RTL, along with 16 other ETFs. [iShares Will Close 18 ETFs]
Additionally, looking ahead, the REITs space could face headwinds as interest rates rise.
“Higher rates could cause higher debt financing costs, put pressure on traditional after-interest expense measures of REIT cash flow, and lead to higher cap rates, which could pressure investment spreads,” Lukasik said. “Also, to the extent that low interest rates have diverted investor funds to REITs searching for higher yield, funds could flow out of REITs if interest rates rise, pressuring commercial real estate and REIT valuations.”
For more information on real estate investment trusts, visit our REITs category.
Max Chen contributed to this article.