"REITs are in a difficult debt refinancing environment that willlead to worsening fixed charge coverage ratios, more challengedliquidity profiles and softening unencumbered asset coveragemetrics," says Steven Marks, managing director and head of the USREIT group at Fitch, in a release. "In addition, a slowing assetsales market will hamper REITs' ability to reduce leverage and sellweaker-performing assets to recycle capital to improve overallportfolio quality."

With Fitch projecting a slightly more than 1% decline in GDP fornext year--the steepest decline since World War II--andunemployment to exceed 8% by late next year, the outlook for officeREITs is especially challenging because space absorption is drivenby both growth in GDP and employment, according to Fitch.Similarly, industrial REITs face weakened industrial tenant demandand declining national occupancy rates that will challenge therental pricing and earnings power of these companies, the releasestates.

Given the recent decline in consumer discretionary spending anda deteriorating labor outlook, retail REITs also get a negativeoutlook from Fitch. However, necessity-based properties such asgrocery-anchored shopping centers should perform well, according tothe release.