These REITs Are Shacky In 2025

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I want to highlight five categories of REITs that I believe investors should avoid in today’s rapidly shifting landscape. These sectors are facing significant risks, and I’m concerned they could suffer major capital losses in 2025. So be sure to read through this entire article to understand why.

We’re currently in a highly uncertain environment, primarily due to the escalating trade tensions. Initially, Trump imposed sweeping tariffs on much of the world, only to walk them back days later with a 90-day pause for most countries—while simultaneously doubling down on China, raising tariffs there to 145%. In response, China retaliated with significant tariffs on U.S. goods.

No one knows exactly how this will play out, but one thing is becoming increasingly clear—this level of uncertainty is likely to push us into a recession.

Just take a look at the chart I’ll place on screen: consumer and business uncertainty has now surpassed even pandemic-era levels—which is truly extraordinary. As a result, companies are likely to delay investments, freeze hiring, and consumers will likely hold off on big purchases. That translates to a sharp drop in new economic activity.

There are also indirect economic consequences that we can’t ignore. For example, we’re seeing a steep drop in international tourism to the U.S.: visits from Canada are down 70%, Europe is down 20–50% depending on the country, and we can expect similar declines from China, even though updated data isn’t available yet. These tourists typically spend a lot of money while in the U.S., and now that spending is disappearing.

In addition, there’s a growing movement to boycott American companies globally—with Tesla being a clear example. Its sales have taken a hit not only in China but also in Europe and Canada. This trend is starting to affect other well-known U.S. brands like Coca-Cola, McDonald’s, and Starbucks—companies that are closely associated with America. This sentiment shift will further weigh on the economy.

Given all this uncertainty and the dramatic drop in business and consumer confidence, it will be very difficult to avoid a recession. So the key question becomes: which property sectors are most vulnerable if we do enter a recession?

1. Hotels

Hotel REITs are at the top of my avoid list. They are among the most cyclical property types, with no long-term leases to stabilize cash flow. That makes them extremely vulnerable in downturns.

We've already seen hotel REITs like Host Hotels, Park Hotels, and Apple Hospitality REIT fall by 20–50% over the past year. Many investors are asking if this is a buying opportunity—and while “buying when there’s blood in the streets” has historically worked in this sector, I believe it’s still too early.

This recent selloff appears largely driven by recession fears, but I don’t think the market has fully priced in the collapse in international tourism yet. Once Q1 results come out, management teams will likely start addressing this in earnings calls, and market sentiment could deteriorate further.

Beyond that, the hotel sector is capex-heavy, highly competitive, and increasingly challenged by Airbnb and booking platforms that take a bigger share of the pie. AI is also a long-term headwind, making it easier for consumers to find the best value and squeezing pricing even more.

Yes, valuations are down—but so are valuations across the REIT space, including in much stronger sectors. So for now, I’m staying on the sidelines and waiting for Q1 results. If prices drop another 10–20%, I might revisit this later in the year.

2. Offices

This one likely won’t surprise you—I’ve been bearish on office REITs for years, even before the pandemic.

The shift to hybrid and remote work has drastically reduced office demand. Vacancy rates are now at an all-time high of 20%, and that’s before a recession has even begun. If we do enter a downturn, office REITs—already under pressure—could face a full-blown crisis.

These assets also require heavy reinvestment to meet new tenant expectations. And like hotels, I believe AI is a long-term drag here as well. Many of the jobs traditionally done in office spaces—lawyers, accountants, consultants—can now be performed more efficiently by fewer people with the help of AI.

As a result, demand for office space could shrink significantly over the coming years.

Even though valuations are low, so are valuations across the board. And unlike other REIT categories, office REITs are facing long-term secular decline. For that reason, I’m steering clear in 2025.

4. Data Center REITs

This one may surprise some of you: I’m also cautious on data center REITs. On the surface, this seems like a booming sector—demand for AI infrastructure is skyrocketing, and it’s easy to be bullish over the long term.

But there are some major concerns:

• Valuations are high, especially relative to other property sectors.

• There’s a flood of new supply hitting the market, which could lead to oversaturation.

• Big tech companies like Microsoft are increasingly choosing to build and own their own data centers to maintain full control.

• And finally, AI itself is evolving quickly—some innovations (like China's DeepSeek) appear to require far less physical infrastructure than previously assumed, raising questions about long-term demand projections.

In short, while this is a compelling long-term theme, there’s too much short-term uncertainty and too much optimism baked into current prices. For that reason, I’m avoiding names like Digital Realty and Iron Mountain at current levels.

5. Mortgage REITs (mREITs)

Last but not least, mortgage REITs—such as AGNC, Annaly Capital, or Arbor Realty Trust—are also on my avoid list.

Yes, they offer eye-catching dividend yields, often in the double digits. But these REITs are extremely sensitive to macroeconomic variables like interest rates, inflation, and credit spreads—all of which are incredibly hard to predict right now.

Recent dividend cuts (like the one from Arbor) are a clear reminder of the risks. These REITs often pay out high yields in the short term, but they frequently fail to anticipate major macro turns, leading to dividend reductions, value destruction, and poor long-term returns.

Over the past two decades, mortgage REITs have delivered less than 5% total annual returns on average—despite those high payouts. That’s because capital losses and dividend cuts have eroded shareholder value.

At the end of the day, I view this sector as more speculative than truly investable, particularly when there are stronger, more predictable options elsewhere in the REIT universe.

6. Residential REITs in Overbuilt or Regulatory-Heavy Markets

The final category I’d avoid are residential REITs that are heavily concentrated in overbuilt or heavily regulated markets—especially urban apartment REITs in cities like San Francisco, Portland, or parts of New York.

Here’s why:

• Oversupply: In some Sunbelt and urban markets, there has been a wave of new multifamily construction, leading to a glut of inventory hitting the market all at once. This is putting pressure on occupancy and rent growth, even for high-quality operators.

• Rent control and regulation: In places like California and New York, strict rent control laws are eroding landlord pricing power. Operating costs continue to rise, but rent increases are often capped—squeezing margins.

• Tenant activism and legal risk: There’s also a growing wave of tenant protections, legal mandates, and proposed legislation that favors renters over landlords. That creates significant uncertainty around future profitability.

• Migration and demographic shifts: In some of these older urban cores, population growth is flat or even negative, while younger workers increasingly opt for hybrid or remote work in lower-cost, business-friendly regions.

So while the residential sector overall has some bright spots, particularly in affordable housing and high-growth metros like Dallas or Tampa, I’d avoid REITs with exposure to saturated or highly politicized markets where landlords are being squeezed from multiple angles.

Conclusion

To recap, I believe a recession is increasingly likely, and that puts pressure on certain property sectors. In my view, it’s still too early to go bargain-hunting in areas where the market hasn’t yet priced in the full impact of a downturn.

So the five REIT categories I’m avoiding in 2025 are:

1. Hotels – Extremely cyclical and vulnerable to tourism shocks.

2. Offices – Structural headwinds from hybrid work and AI.

3. Billboards – No lease protection, ad budgets vulnerable in recessions.

4. Data Centers – High valuations, looming supply, evolving tech.

5. Mortgage REITs – High yield, but highly unpredictable and historically underperforming.

6. Residential - Oversupply, High dept

Let me know in the comments—which REIT sectors are you avoiding in 2025, and why? I’d love to hear your thoughts.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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