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

UBS analysts have indicated that Real Estate Investment Trusts (REITs) have demonstrated superior performance compared to the broader market, with returns exceeding those of the S&P 500 index by approximately 4 percentage points as of the close on Monday. This outperformance began around March 4, coinciding with the Trump administration's imposition of tariffs on goods from Canada and Mexico, as well as increased import taxes on Chinese products. The analysts noted that REITs have shown resilience in the face of market volatility, particularly in the context of trade tensions. This trend has made REITs a favored asset class for risk mitigation strategies, as investors seek stable returns amidst the uncertainty caused by trade policies.

The analysts' recommendation underscores the potential of REITs to provide a hedge against market downturns, making them an attractive option for investors looking to diversify their portfolios. The defensive nature of the REIT sector, supported by tangible assets and limited international risk exposure, contributes to its resilience. Additionally, the delayed impact of tariffs on tenants further enhances the stability of REITs. The analysts highlighted that REITs with self-storage facilities and triple net leases, where commercial tenants bear the costs of property taxes, insurance, and maintenance, are likely to remain stable. Other stable sectors include single-family rentals, coastal apartments, and manufactured housing communities.

However, the analysts cautioned that sectors such as industrial properties, warehouses, and cold storage facilities may face challenges due to the potential impact of tariffs and consumer slowdowns. Similarly, shopping centers and other retail properties may encounter difficulties. Despite these potential headwinds, the overall outlook for REITs remains positive, particularly in the context of ongoing trade uncertainties. The analysts' insights provide valuable guidance for investors navigating the complex landscape of trade policies and market volatility.

Following the announcement by President Donald Trump to temporarily suspend certain tariffs for 90 days, REITs experienced an upward trend, mirroring the broader market's response. Notable performers included UDR, a REIT focused on apartments, which saw an 8% increase, Extra Space Storage, specializing in storage units, which rose by 7%, and ELS, which owns manufactured housing communities and resorts, with a 4% gain. These movements underscore the market's positive reception to the temporary tariff suspension and the continued appeal of REITs as a stable investment option.