With interest rates in Australia expected to fall this year, investors may be thinking more about ASX real estate investment trusts (REITs).

Lower or falling interest rates tend to be a tailwind for REITs, so is it time to buy any of them?

Macquarie has just released a new note with its recommendation on the popular Charter Hall Retail REIT (ASX: CQR).

Let's take a look at this REIT's recent performance, and discover what the broker has to say about it.

Update on Charter Hall Retail REIT

The Charter Hall Retail REIT has outperformed its peers in the S&P/ASX 200 A-REIT Index (ASX: XPJ) over the past 12 months.

The CQR REIT has lifted by 15% in value over this period while the broader REIT sector has risen by 4.5%.

Charter Hall Retail REIT shares are currently $3.80, down 0.91%.

The REIT has also outperformed the benchmark S&P/ASX 200 Index (ASX: XJO), which is 7% higher over the past year.

Macquarie analysts attended Charter Hall's recent CQR REIT investor day in Sydney.

This included a tour of Pacific Square in Maroubra and Eastgate Shopping Centre in Bondi Junction.

The broker said capital recycling and the acquisition of pub owner Hotel Property Investments (HPI) had raised the portfolio's quality.

In its note, Macquarie said:

Capital recycling and HPI improves portfolio quality. Over FY24, CQR divested $315m of low-growth non-core assets, with a further $123m in 1H25 and made a number of acquisitions with greater income growth potential and/or development opportunities.

For example, smaller pad site developments generating 10%+ cash yield on cost of which CQR has delivered 9 over the past four years at a 22% IRR. CQR is working on a further 10 opportunities at the moment to be delivered over the next few years.

The broker said this positioned the ASX REIT for earnings growth, but this was "still some time away".

The acquisition of HPI and its rent review structure (~73% CPI-linked) is expected to deliver improved NPI growth of +3.6% p.a. vs CQR's +3.0% in 1H25.

Whilst CQR notes its portfolio and capital structure is now positioned for growth, we forecast -0.2% OEPS CAGR FY24-27 (VA consensus: -1.2%) due to interest expense headwinds, despite a strong underlying portfolio.

Headwinds ease from FY27 when hedging rolls off to 15% from 57-61% in FY25/26, although this is two years away.

Is this ASX REIT a buy, hold, or sell?

Macquarie noted CQR's attractive "resilience in income" but downgraded it from an outperform rating to neutral based on valuation.

The broker said:

CQR is now trading at a 16% discount to NTA vs 5-year average discount of 15%.

The broker has maintained its 12-month target price of $3.51 on CQR.

This implies a potential 7.6% downside from here.