While global economies recoil from the volatility driven by US president Donald Trump’s tariffs, REITs have remained resilient.

Trucking right: demand for REITs that invest in the industrial and logistics sector may increase as a result of disruption in global supply chains

In the UK, the FTSE 350 REIT index closed at 2,168 points on 30 May, up 7% from 2,022 points at closing on 2 April, when Trump first announced US trade tariffs on what he dubbed ‘Liberation Day’. The more mature US REIT market remained stable, while in the Asia-Pacific region, tax-efficient trusts are close to their 12-month high.

As stock markets struggle to recover losses caused by Trump’s tariff policy, what is causing this anomaly in REITs’ performance?

Alastair Stewart, equities analyst and consultant at Progressive Equity Research, sums up the global view: “With Trump’s tariffs and general daily seesaw of news flow, most investors worldwide are probably pausing for breath and seeing where yields, rents and the cost of living settle. But given what is happening across the world, Britain is becoming a bit of a safe haven.”

Investors are looking to REITs for diversification that is more liquid than private real estate
Matthew Goulding, CentreSquare

Jonathan Kownator, a real estate analyst at Goldman Sachs in New York, says: “Volatile macro context has driven more interest in real estate. A more uncertain outlook for European growth since US tariff implementation, lower inflation expectations driven by energy prices and stronger currencies gave more headroom for European central banks to cut rates. This has driven increasing interest in the sector, given its domestic and defensive nature, cheap valuation and attractiveness for diversification.”

Kownator also points to the chunky 36% trading discount in REIT valuations, which is why REIT merger and takeover activity has intensified recently.

Paul May, head of real estate equity research at Barclays Investment Bank, says investors’ mood has switched towards targeting income: “Up until 2 April, there was a shift in investors’ focus away from rates and from just being a bond proxy to underlying cashflow. On 2 April, volatility, risk premiums and recession risk increased and we saw a complete reversal [of trading up to that date]. Suddenly, German residential was outperforming materially and healthcare was performing well.”

Defensive advantage

REITs allow investors to quickly adjust and diversify portfolios. Their defensive nature also helps them hold strong in a volatile market. As Kate Leaman, chief market analyst at AvaTrade, notes: “Even in times of economic uncertainty, people still need houses to live in, making this sector less sensitive to macro shocks.”

Unlike tech or cyclical stocks, REITs tend to pay reliable dividends, which is especially attractive when market volatility is high and interest rates unpredictable. REITs are also backed by real, tangible assets, rather than just contracts or growth expectations.
Leaman says demand for REITs that invest in industrial and logistics, for example, could be boosted by disruption in global supply chains: “Also, they are less susceptible to inflationary pressure, as many REITs have rent escalation clauses tied to the Consumer Price Index.”

Analysis from CenterSquare Investment Management reveals that REITs outperform broader equities markets when US Treasury 10-year notes yield between 4% and 5%.

Safe as houses: trade tariffs have had little direct impact on REITs that invest in housing

Matthew Goulding, CenterSquare portfolio and regional manager, real estate securities, says: “In ultra-low or negative interest rate environments like in the years between the financial crisis and the post-Covid inflationary wave, REITs underperformed broader equities, as investors can discount future cashflows at a lower rate, justifying higher valuations, especially in high-growth sectors like tech.”

While financial markets were very volatile in the wake of US tariff announcements, real assets have a lower correlation to public equities and bonds, with publicly traded real estate securities tracking private real estate’s performance over the long term.
Goulding says: “Investors are looking to REITs for diversification that is more liquid than private real estate. REITs are also attractive for their defensive investment profile, as they offer access to real assets generating predictable, contractually underpinned cashflows.”

REITs’ two distinct advantages over private real estate vehicles are liquidity and lower capital requirements. As investors adjust their portfolios in response to market and political events, this liquidity is set to have enhanced appeal in the current macro environment.

Resilience and interest rate sensitivity

Meanwhile, with valuations attractive and fundamentals holding steady, REITs offer a timely mix of resilience and interest rate sensitivity. Todd Kellenberger, client portfolio manager at Principal Asset Management, says that in a market defined by volatility and concentration risk, REITs stand out as a differentiated source of return for portfolios.

He adds: “Amid slowing growth, heightened policy uncertainty and persistent market volatility, investors are gravitating toward defensive sectors. Listed REITs are emerging as a relative bright spot, posting one of their strongest starts to the year versus equities in over a decade, underscoring their appeal in a risk-off environment.”

REITs’ two key ingredients for a compelling investment case – attractive valuations and solid fundamentals – look set to be joined by the return of a missing third ingredient: accommodating interest rates.

Kellenberger says: “Rising yields were a headwind for REIT performance, but that pressure may be easing as policy and growth expectations evolve. The correlation between REIT returns and yields has reached an extreme of -0.9. While damaging in a rising rate environment, this heightened sensitivity has driven a strong upside when yields decline.”

REITs are also partly insulated from tariff policies. Kellenberger says: “While indirect risks exist, such as construction material costs and tariff-driven slowdowns, most listed REITs have limited direct exposure. REIT earnings have tailwinds building, with new supply starting to come down and an expected increase in commercial real estate transactions this year.”

Oli Creasey, head of property research at Quilter Cheviot, cites the long-term and relatively reliable income property offers as key reasons REITs are riding the tariff turmoil well. “With commercial property, you are buying long-term leases, so 10-years-plus of income,” he says. “Your lease will probably sail through something that might create uncertainty in the next 12 to 24, months, unless it sends your tenant bankrupt. So, when you have a mild recession or a temporary blip, property tends to manage that relatively well.”