REITs Outperform S&P 500 by 4% Amid Trade Tensions

In the midst of escalating trade tensions, U.S. equities have been experiencing significant volatility. Amidst this uncertainty, real estate investment trusts (REITs) have emerged as a favored asset class for risk-averse investors, according to analysts. The firm's analysts noted that REITs have outperformed the broader market, with an estimated return rate for 2025 that is approximately 4 percentage points higher than that of the S&P 500 index. This outperformance began around March 4, coinciding with the imposition of tariffs on goods from Canada, Mexico, and China.

Analysts attribute this resilience to the defensive nature of the REIT sector. REITs are backed by tangible assets, have limited exposure to international risks, and the impact of tenants is expected to be delayed. This makes them a more stable investment option in the current environment. The analysts also highlighted that REITs with self-storage facilities and triple-net leases, where tenants are responsible for property taxes, insurance, and maintenance, are likely to remain stable. Other stable sectors within REITs include single-family rentals, coastal apartments, and manufactured housing communities.

However, the outlook for industrial REITs, which cater to manufacturing and logistics tenants, is less optimistic. The analysts warned that the combination of tariffs and slowing consumer demand could negatively impact these sectors, leading to reduced demand for warehouses and cold storage facilities. Similarly, retail properties, including shopping malls, may face challenges due to the economic uncertainty.

The recent announcement to temporarily suspend some tariffs for 90 days has provided a temporary boost to the market, including REITs. This move has led to a surge in the prices of several REITs, with a residential REIT rising by 8%, a self-storage REIT increasing by 7%, and a manufactured housing REIT gaining 4%.

Analysts believe that the uncertain economic environment, driven by trade tensions, will continue to favor REITs. The sector's defensive characteristics and limited exposure to international risks make it an attractive option for investors seeking stability in a volatile market. As the trade situation evolves, REITs are likely to remain a key component of many investment portfolios, providing a hedge against market volatility and economic uncertainty.