Citigroup Market Experts Cite Tailwinds for Industrial, Multifamily and NYC Office

Citigroup (C)’s top investment experts held an open roundtable Monday as they presented their outlook for office, retail, industrial, multifamily and even the real estate investment trust (REIT)space amid a higher interest rate environment.  

The symposium opened with Citigroup Managing Director Nicholas Joseph, head of the real estate and lodging team, listing the various tailwinds pushing the commercial real estate sector forward in the opening months of 2025: low supply across all property sectors; economic constraints on new construction stats; steady demand; and improved rent growth, with same-store net operating income growth expected to stay within the 3.3 percent range it held in 2024.  

Joseph emphasized that even amid higher interest rates and the threat of inflation, the REIT space is primed for growth, largely on the backs of relative outperformance during 2024. 

“Overall, we still like REITs,” said Joseph. “We’re calling for REIT [total returns] to be up 10 percent to 15 percent in the U.S., and our preferences from a subsector perspective are health care, senior housing, residential and industrial. That’s where we’re mostly positioned.” 

Citigroup Director Craig Mailman, who oversees retail and industrial, noted that the supply picture across the industrial sector is “emptying out,” and that those assets will be among the first to benefit from the low supply metrics in 2025 and beyond, as last year net absorption tended to fall below long-term averages. 

“Demand post-election has picked up, it has continued, and it is pretty broad based,” Mailman said. “And so that has really been the focus for investors and us — the sustainability of this demand improvement — which we think bodes well for net absorption statistics in the second half of this year.” 

On the retail front, Mailman cited the recent bankruptcies of Bed Bath & Beyond, Party City, and fabric and craft retail chain Joann as critical events. He said investors are now watching to determine how the new inventory will impact supply metrics and vacancy levels as the properties once owned by those defunct firms are auctioned off into a market that has seen record lease rates. 

“Supply is minimal outside second- and third-rate markets, infill is very limited, and so these bankruptcies are really the new supply coming on, and there’s good tenant demand for them,” said Mailman. “The supply-demand dynamic in retail continues to be strong — rents are still moving higher.” 

Director Eric Wolfe, an analyst who covers the residential and self-storage sectors, noted that single-family homebuying continues to be “incredibly unaffordable” relative to renting, and that the U.S. hasn’t seen a gap this high between the cost to buy versus the cost to rent in nearly half a century. Moreover, home market turnover rates are near record lows. Supply is no better on the multifamily front, as the number of available apartments is expected to hit a 10- to 15-year low over the next two years, he said.  

“If you have strong demand that’s supported by an unaffordable housing market, combined with supply coming down, we think that rental rates will likely accelerate,” said Wolfe, who added that Citigroup guidance believes this will continue in 2026 and 2027. 

Wolfe added that he’s advised Citigroup’s portfolio to remain underweight in self-storage due to concerns regarding fundamentals related to a slow homebuying environment, as well as inflated valuations.  

“We just felt it was a poor risk reward … and so we made the change there even though we still believe the fundamentals will likely struggle through this year and part of next year,” he said. 

Finally, Joseph ended the panel by admitting Citigroup is bullish on office — but only in New York City, and certainly not on the West Coast.  

“We’ve remained underweight in office broadly, but our preference has been in New York. … We’ve seen better leasing, better economics and truly a recovery, ” he said. “We have not seen that as sustained on the West Coast, so we’re waiting for more leasing strength before deciding to make any moves there.”

Brian Pascus can be reached at bpascus@commercialobserver.com