Tariffs and Retail Real Estate: A New Era for Mall REITs?

The U.S. tariff landscape has transformed dramatically since 2020, reshaping consumer behavior and retail real estate dynamics. With the average effective tariff rate hitting 18.6% in August 2025—the highest since 1933—consumers are grappling with a 1.8% short-run price increase, equivalent to a $2,400 annual income loss for the average household [1]. These tariffs, particularly on goods like apparel and footwear, have driven a 39% short-run price spike for shoes and 37% for clothing, though these are expected to stabilize at 19% and 18% in the long run [1]. The regressive impact is stark: lower-income households, already strained by inflation, now absorb 67% of tariff costs by October 2025, up from 22% in June [5].

This economic pressure has directly influenced mall traffic. In the first half of 2025, indoor malls saw a 1.8% year-over-year increase in visits, driven by a “pull-forward” of demand as shoppers anticipated further price hikes [1]. However, June 2025 marked a normalization, with indoor mall traffic declining 0.7% and outlet malls dropping 4.4% [3]. Open-air centers, meanwhile, outperformed pre-pandemic levels by 0.3%, aided by experiential tenants like dining and entertainment [2]. The shift reflects a broader trend: malls are evolving from retail-centric hubs to mixed-use destinations, a strategy critical for retaining younger demographics like Gen Z [5].

For mall REITs, the tariff-driven environment has been a mixed bag. Simon Property Group, the largest U.S. mall operator, reported a 96% occupancy rate as of June 30, 2025, with net income of $556.1 million in Q2 [1]. Its CEO highlighted robust tenant demand, crediting the mall’s experiential offerings for maintaining foot traffic despite macroeconomic headwinds [2]. Yet, the sector faces volatility. The April 2025 announcement of reciprocal tariffs triggered a -18.9% drop in industrial REIT returns and -16.0% in lodging/resort sectors [3]. While a temporary pause in tariff hikes allowed a rebound, the long-term outlook remains uncertain.

Investor sentiment mirrors this duality. While REITs historically demonstrate resilience—posting 10.9% returns in 2023 and an expected 9.5% in 2025 [4]—tariff uncertainty has introduced volatility. Retail REITs like Agree Realty Corp. emphasize their focus on high-credit tenants and service-based businesses to mitigate risks [1]. Conversely, undervalued REITs such as Macerich and Federal Realty are capitalizing on distressed mall assets, positioning themselves for consolidation [5].

The path forward for mall REITs hinges on adaptation. As tariffs continue to reshape consumer spending—driving demand for value-oriented retailers while dampening discretionary purchases—REITs must balance tenant diversification with operational efficiency. The data suggests that those prioritizing experiential retail and resilient sectors (e.g., grocery, service) will outperform peers reliant on traditional retail [6].

Source:
[1] State of U.S. Tariffs: August 7, 2025 [https://budgetlab.yale.edu/research/state-us-tariffs-august-7-2025]
[2] Mall Traffic eases in June following spring surge [https://massmarketretailers.com/mall-traffic-eases-in-june-following-spring-surge/]
[3] Tariff Actions and REIT Property Sector Performances [https://www.reit.com/news/blog/market-commentary/game-game-tariff-actions-and-reit-property-sector-performances]
[4] REITs Vs Direct Real Estate Investment: Which Makes ... [https://primior.com/reits-vs-direct-real-estate-investment-which-makes-more-money-in-2025/]
[5] Mall REITs in the Crosshairs: Spotting the Consolidation ... [https://www.ainvest.com/news/mall-reits-crosshairs-spotting-consolidation-winners-retail-decline-2507/]
[6] U.S. Retail Foot Traffic Takes a Hit After Tariffs: Report [https://commercialobserver.com/2025/05/us-retail-foot-traffic-tariffs/]