"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."

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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.

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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.

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Two REIT subsectors with a more encouraging credit outlook aremultifamily and healthcare, and Fitch says it's retaining the"stable" rating for these REITs. Helping the outlook formultifamily REITs is their continued access to financing fromFannie Mae and Freddie Mac, while healthcare REITs will continue tobenefit from long-term demographic trends driving demand forservices amid a relatively limited new supply of product.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.