Many investors are turning to real-estate stocks as a safe haven during the U.S.-China trade dispute that has been whipsawing the stock market.
Real-estate investment trusts—shares of companies that own office towers, hotels, shopping malls and other commercial properties—offer investors exposure to businesses that are geared toward the domestic market.
That makes these companies less vulnerable to disruptions in global supply chains from the tariffs that Washington and Beijing are imposing on each other’s economies. Residential and health-care REITs are the most defensive, analysts say, since demand for homes, hospitals and other medical facilities are tied more to demographic trends than the strength of the economy.
Real estate’s safe-haven status was on display during the recent two-day selloff after trade talks between the U.S. and China broke down. In trading on May 10 and May 13, shares of REITs rose 0.9%, while big manufacturing companies such as Caterpillar Inc. (CAT) and Boeing Co. (BA) each fell by around 4.5%. The S&P 500 (.SPX) fell 2.1% during that two-day period.
While the stock market bounced back after that, economists say escalating trade tensions could keep tariffs in place for a while. That makes long-term, stable investments such as real estate more attractive, said Joel Beam of investment-management firm Salient Partners LP.
“The safe-haven mentality starts to resonate with investors,” he said.
There are risks to property owners of a general economic slowdown, political instability, or volatility in the capital markets. But so far there has been minimal impact on U.S. real estate, said Amanda Black, managing director of investment-management firm Jaguar Listed Property.
“Our conclusion is that for U.S. REITs, it is mostly a nonevent,” she said.
Apart from the hotel industry, real-estate firms tend to have leases of five to 10 years or even longer where tenants can’t make knee-jerk changes to short-term shocks. For now, real-estate firms face more pressure from higher construction costs and labor shortages, said Alexander Goldfarb, an analyst with Sandler O’Neill + Partners LP.
The FTSE Nareit All Equity REITs index has a total return of 16.6% compared with a 14.2% return for the S&P 500 year to date through Monday.
Real-estate stocks can be especially vulnerable to rising interest rates because of the amount of debt they use, but with the Federal Reserve indicating it will keep interest rates unchanged, that has helped boost REIT shares.
Not all REITs are likely to respond the same way to any trade impact on the domestic economy. Industrial REITs have distribution centers serving the movement of goods in the U.S., and only a small portion are located around ports that serve global trade, landlords said.
Hotel occupancy is likely to be the first to be hurt if weaker business and consumer sentiment curtails leisure and business travel, while retail tenants already combating disruption by e-commerce and price pressures will face additional pain if they can’t pass on higher costs from tariffs on clothing, luggage and furniture to consumers.
A small handful of REITs have operations abroad and revenue in multiple currencies. These REITs may be more exposed to foreign-exchange volatility, but they are usually bigger and have stronger growth profiles and balance sheets to offset such fluctuations.
Equinix Inc. (EQIX), the largest data-center REIT, with properties in 24 countries, said trade tensions have had little impact on demand, as companies are still focused on growing their digital infrastructure across borders.
“While the global trade of physical goods is flattening, the opposite is true in terms of our global digital economy,” said Charles Meyers, chief executive officer of the Redwood City, Calif., firm.
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