The Zacks Real Estate – Development industry faces ongoing challenges, like geopolitical instability and macroeconomic uncertainty. These factors are likely to drive up material expenses and uphold high real estate prices. Sales activity is expected to stay subdued in the near future until there is a recovery in macroeconomic conditions.

However, healthy demand across several real estate property categories, along with a slowdown in the pace of new deliveries, is anticipated to support the industry, thereby placing companies like Howard Hughes Holdings Inc. (HHH Quick QuoteHHH - Free Report) and Green Brick Partners, Inc. (GRBK Quick QuoteGRBK - Free Report) in a strong position for growth.

About the Industry

The Zacks Real Estate – Development industry comprises companies primarily engaged in owning, developing and managing a variety of real estate properties, including commercial, residential and mixed-use parcels. While some developers undertake construction on their land holdings to eventually sell the properties to homebuilders, retaining the same for conducting operations is also a common practice. Some industry participants actively undertake strategic activities, such as infrastructure improvement, along with land planning and development, to boost economic growth, attract quality job creators and diversify the regions in which the firms operate. These firms provide real estate leasing, stewardship, underwriting, planning and entitlement services. Real estate development companies are chiefly classified as financial ones, not construction firms.

What's Shaping the Future of the Real Estate Development Industry?

Macroeconomic Uncertainty Woes Linger: The ongoing uncertainty related to trade policy is anticipated to impact the industry’s growth in the near term. The tariff polices with other countries are expected to raise the cost of certain imported goods for the remainder of this year. This makes investors skeptical about the economy’s outlook. Companies operating with international supply chains and diverse workforces are anticipated to face new and more complicated matters related to trade agreements, immigration policies and diplomatic relations. Amid macroeconomic uncertainty, clients are likely to adopt a cautious approach. As a result, investors’ desire for greater price discovery will cause a delay in the closing timeline for transactions.

Geopolitical Unrest to Affect the Industry: Geopolitical instability is likely to have a significant impact on the industry's performance. Conflicts occurring in various nations have impacted the global economic landscape. These situations have escalated supply-chain disruptions and increased inflation. Several capital sources are tightening their underwriting practices, reducing credit availability. In the upcoming period, sales activity is likely to stay subdued until macroeconomic conditions improve.

Demand Revival for Certain Asset Classes and Constrained Supply Helps Industry Fundamentals: Demand for certain real estate categories, such as retail, industrial, logistics, data center, and office, is witnessing healthy growth. The increase in consumers' preference for in-person shopping following the pandemic is driving demand for retail real estate in high-traffic areas, prompting retailers to expand to fulfill this demand. Meanwhile, the e-commerce boom and supply-chain strategy transformations are driving growth in the industrial and logistics real estate space. With growth in cloud computing, Internet of Things and Big Data, and an increasing number of companies opting for third-party IT infrastructure, data-center companies are experiencing a booming market. The office REITs are experiencing an increase in the number of tenants returning to offices or announcing plans to do so. This is likely to support office real estate market fundamentals. Moreover, in addition to raising the price of raw materials, an elevated interest rate environment has also slowed down the pace of new construction deliveries. Particularly, the residential market is experiencing a significant shortage of new homes as a result of more than a decade of under-building in comparison to population growth. The retail real estate market is also going through supply shortages, which is helping the industry fundamentals. Hence, the rebound in demand for certain real estate categories and supply shortage are likely to play a role in maintaining favorable industry fundamentals.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Real Estate Development industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #180, which places it in the bottom 27% of 245 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the southbound earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. For 2025 and 2026, the industry’s earnings estimates have moved 26.8% and 42% south since September 2024.

However, before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Underperforms the Sector and the S&P 500

The Zacks Real Estate – Development industry has underperformed the S&P 500 composite and the broader Finance sector over the past year.

The industry has declined 4.4% during this period against the S&P 500 composite’s growth of 22.1%. The broader Finance sector has increased by 20.7%.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E), which is a commonly used multiple for valuing real estate development companies, we see that the industry is currently trading at 6.94X compared with the S&P 500’s 22.93X. The industry is also trading below the Finance sector’s forward 12-month P/E of 17.51X. This is shown in the chart below.

Forward 12-Month Price-to-Earnings (P/E) Ratio

Over the past five years, the industry has traded as high as 16.58X and as low as 3.90X, with a median of 6.22X.

2 Real Estate Development Stocks to Consider

Howard Hughes Holdings, Inc.: This Woodlands, TX-based company is engaged in the ownership, management and development of commercial, residential and mixed-use real estate throughout the United States. The company operates through three business segments: namely Operating Assets, Master Planned Communities and Strategic Developments.

Its assets include a portfolio of master-planned community assets, buildings and equipment, land and developments. With its expertise in the real estate sector, the company is well-poised to bank on the favorable demand in the residential and commercial real estate markets.

HHH currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its 2025 EPS has declined a cent to $1.71 over the past week. The stock has gained 13.2% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Green Brick Partners, Inc.: This is a diversified homebuilding and land development company operating in Texas, Georgia and Florida. It is engaged in all aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing and sales for its residential neighborhoods and master-planned communities.

GRBK enjoys several strategic advantages, including a significant footprint in the U.S. markets, with considerable job growth and demographics. Particularly, with superior infill and infill-adjacent locations in high-growth markets, GRBK is likely to gain amid the strong demand for new homes in its markets.

GRBK currently has a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2025 EPS has been revised 10 cents upward over the past two months to $6.40. The company’s shares have gained 22.4% in the past three months.